Public Service Pensions Update | September 2021

In this edition we report on a flurry of responses to government consultations, and some notable decisions by the Pensions Ombudsman. If you would like to discuss any of the developments in this newsletter, please contact one of the experts listed below.

Consultation response | Local Government Pension Scheme (LGPS) Advisory Board (SAB) responds to HM Treasury's consultation on cost control mechanism

SAB has responded to HM Treasury's consultation on the public service pension schemes cost control mechanism. As a preliminary comment, SAB queries whether the objectives and assumptions underpinning the mechanism could have been revisited as an alternative to revising the mechanism. On the main recommendation that the mechanism should be based on the reformed public service pension schemes only (that is, excluding allowances for the legacy schemes), SAB's view is that this may be difficult to achieve in the context of the LGPS in view of the LGPS underpin which takes into account the legacy scheme. Unlike the other main public service schemes, the LGPS does not rely on central government funding. This may lead to any future increases in underpin funding falling on LGPS scheme employers. SAB's detailed response can be found here.

 Consultation response | Local Government Association responds to consultation on 'Stronger Nudge to Pensions Guidance'

The Local Government Association (LGA) has on behalf of the LGPS responded to the Department for Work and Pensions' consultation on the need for a "stronger nudge to pensions guidance". The consultation called for views on the proposed introduction of new regulations formalising the obligations on scheme trustees and managers to refer beneficiaries to receive appropriate pensions guidance, or to opt out of receiving such guidance, prior to accessing or transferring their pension benefits. In its response, the LGA raises concerns as to the "unintended consequences" of the proposed regulations for members of the LGPS with both defined benefit (DB) and defined contribution (DC) benefits, suggesting that the proposed regulations have been drafted with standalone DC schemes only in mind.

 Consultation response | Government responds to Public Accounts Committee's public service pensions report and recommendations

The government has provided its response to the Public Accounts Committee's (PAC) latest report on public service pensions. In its report, the PAC made a number of recommendations to begin addressing some of the key issues that emerged from various reforms to the public service pensions regime between 2011 and 2015 (see pages 5, 6 and 7 of the report). The government's response is largely amenable to the PAC's conclusions, undertaking to keep it updated on the implementation of six headline recommendations, over the course of the next six months.

 Update | Staff transfers - Government Actuary's Department (GAD) lifts suspension of broad comparability assessments on a limited basis

Following the government's response to the judgment in McCloud, GAD issued a Q&A note on 6 August 2020 explaining that the certification of broad comparability had been suspended. On 27 August 2021 GAD updated its website to indicate that further to an analysis of developments including the government's proposed McCloud remedies, it has started a rolling programme of recommencing some broad comparability work. Initially, this broad comparability assessment will only involve the assessment of Career Average Revalued (CARE) benefits for members eligible for remedy. For transfers prior to 1 April 2022, GAD anticipates there may be further adjustments needed to address the McCloud remedy and will notify contracting authorities as soon as possible.

 Pensions Ombudsman | Various

LGPS - Mrs G - PO-26001 – no requirement for administrator to provide financial advice

The Pensions Ombudsman has rejected a complaint, by a member of the LGPS, that when she opted to defer taking her pension beyond normal pension age, she was not told by the administering authority that she might receive more pension overall if she took her pension from normal pension age. The member argued that her benefits should be backdated to her normal pension age. As the retirement options letter issued by the administering authority did invite the member to contact the administering authority if she had any further enquiries, the Pensions Ombudsman found that if the member had any doubt as to the manner in which benefits would be paid she should have contacted the administering authority for clarification of how benefits increase in deferment. The member argued that the administering authority should have told her that deferring her benefits could cause financial loss. However, the Ombudsman disagreed on the basis that administering authorities are not regulated to provide financial advice to their members.

Teachers' Pension Scheme – Mrs S – PO-23848 – recovery of overpayment

The Pensions Ombudsman has partially upheld a complaint by a member of the Teachers' Pension Scheme concerning the overpayment of a widow's pension under a scheme regulation which provides for a spouse's pension payable after the member's death to cease if the surviving spouse subsequently remarries or cohabits. Mrs S argued that the scheme should not have sought to recover the overpayment for a number of reasons.

The Pensions Ombudsman concluded that the scheme was right to find that Mrs S was cohabiting and accordingly it was right to cease payment of her spouse's pension, but this did not amount to a breach of age discrimination requirements because her pension was attributable to the accrual of her late husband's pension in the period prior to 1 December 2006 which was not subject to pensions age discrimination legislation. Neither did this amount to indirect sex discrimination (that is, on the basis that women are more likely to be affected by the scheme regulation) as the Ombudsman took the view that female surviving spouses are likely to be in receipt of a surviving beneficiary pension for longer than a male surviving spouse. There was no breach of the Human Rights Act 1998 because the right to Mrs S's pension was fixed before the Act came into force.

However, the Pensions Ombudsman found that Mrs S did have a defence to the recovery of the overpayment on the grounds of change of position (but not estoppel or contract) because Mrs S acted in good faith when she relied to her detriment on the overpayment by increasing her standard of living over and above what it might otherwise have been. It followed that as a matter of law the scheme was unable to recover any of the overpayment. In addition, the scheme should not have set off the arrears of GMP against the overpayment as this was in breach of section 91(6) of the Pensions Act 1995 and section 159 of the Pension Schemes Act 1993 and amounts to maladministration.

Police Pension Scheme – Mrs R – overstatement of benefits

The Pensions Ombudsman has partially upheld a complaint that the scheme administrator sent Mrs R incorrect annual statements which overstated her pension lump sum and as a result Mrs R argued that she had suffered financial loss of £30,000.

Based on an annual benefit statement, Mrs R believed she would be paid a lump sum of £61,000 at retirement. Further correspondence received led Mrs R to believe that the benefits stated were guaranteed, although this wasn't the case. Subsequently - and prior to her benefits being paid - she purchased a property abroad and took a £30,000 loan. Mrs R had been incorrectly treated as a deferred pensioner rather than a pension credit member which resulted in the incorrect calculation of her lump sum – her entitlement actually amounted to just over £31,000.

The Ombudsman considered the facts and stated that it was not reasonable for Mrs R to rely on the benefit statement to the degree that she did as it did not provide a guarantee of benefits. The Ombudsman held that Mrs R had not suffered financial loss - noting that the expenditure Mrs S had incurred had occurred prior to any receipt of benefits - and that the scheme administrator had no discretion to award benefits in excess of those provided for in the scheme rules. Instead, Mrs R had suffered a loss of expectation which is a non-financial injustice. The complaint was partially upheld with £2000 ordered to be paid for distress and inconvenience which reflected the amount that had previously been offered at IDRP stage in full and final settlement of the complaint.

 House of Commons Library briefing papers | New and updated

The House of Commons Library has updated its briefing papers on the response to McCloud and the cost control mechanism. The McCloud response update sets out the latest developments in the government's plans to remedy discrimination in the transitional arrangements for the 2015 public service pension schemes. The cost control update looks at how the government proposes to meet the costs of the McCloud remedy by using the cost control mechanism introduced under the Public Service Pensions Act 2013.

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