UK Public Service Pensions Update | April 2023

This month, we look at developments in areas ranging from the McCloud remedy to additional HMRC guidance on the Lifetime Allowance changes, new guidance on equality, diversity and inclusion in governing bodies, and pensions dashboards.

If you would like to discuss any of the items in this newsletter, please contact one of the experts listed at the end of this update.

The McCloud remedy | Local Government Pension Scheme

In our May 2021 newsletter, we reported that the Department for Levelling Up, Housing and Communities (DLUHC) had set out the key elements of the changes that would be made to the Local Government Pension Scheme (LGPS) to remedy the unlawful discrimination identified by the Court of Appeal in the McCloud case, and confirmed that a full consultation response would follow. At the time, the hope was that the related regulations would come into force on 1st April 2023.

The DLUHC has now published the full consultation response, together with a factsheet for members – prepared with the LGPS Scheme Advisory Board (LGPS SAB) – which explains the remedy.  

The consultation response provides more information about the changes that will be made. It also confirms that the government intends to launch a further consultation, this spring, to seek views on:

• "issues where we have not yet made final decisions on how the underpin will work and where we have confirmed in this [response] we will reconsult – such as aggregation … and flexible retirement";
• proposals in relation to "a number of issues not consulted upon in 2020, which may need to be addressed in … regulations … such as compensation, interest payments and excess teacher service"; and
• "an updated draft of the regulations, covering both the matters where decisions have already been taken and confirmed in this response as well as the matters we will be seeking views on in our next consultation. The updated draft will be significantly revised to reflect the technical feedback received in 2020, changes in policy that have since been made and to ensure the provisions reflect the terminology and structure used in" the Public Service Pensions and Judicial Offices Act 2022.

The government intends that final remedy regulations will come into force on 1 October 2023 and apply retrospectively to 1 April 2014, "ensuring a single set of rules governing the underpin applies to members who were originally protected and those who are in scope of the McCloud remedy".

In the meantime, it "encourages those responsible for the running of administering authorities to ensure they have sufficient resourcing plans in place" for implementation of the McCloud remedy.

The McCloud remedy | Consultations

In our last newsletter, we reported that a number of departments had opened consultations on draft regulations (or policies to inform amendments) to be made under the Public Service Pensions and Judicial Offices Act 2022 in order to implement the retrospective part of the McCloud remedy: the deferred choice underpin under which members of schemes other than the LGPS and judicial pension schemes will be able to choose between legacy scheme and reformed scheme benefits for remediable service between 1 April 2015 and 31 March 2022. Since then:

• the Ministry of Defence has added two addenda to its consultation in relation to the armed forces pension schemes, one setting out "how the retrospective remedy will apply to those in scope who divorce or dissolve a civil partnership in circumstances where their pension benefits are taken into account as part of the financial settlement" and another setting out the policy in relation to re-joiners; and
• the Department for Education has launched its consultation in relation to the Teachers' Pension Scheme, which is open until 4 June 2023.

SCAPE discount rate | Consultation response and new rate

In our July 2021 newsletter, we reported that HM Treasury had opened a consultation on changes to the Superannuation Contributions Adjusted for Past Experience (SCAPE) discount rate methodology.

The government has now published its response to that consultation. This confirms that the government has decided to retain the current methodology, but has "considered ways in which the ‘stability’ objective might be better met" while doing this. "Going forward the government will aim to review the level of the discount rate once per valuation cycle rather than every five years. The government believes this change will result in fewer reviews of the discount rate in practice than the current cycle and provide greater certainty to employers".

The government has also confirmed the new SCAPE discount rate, resulting in the temporary withdrawal of HMRC guidance on the discount rates to be used when calculating transfer values.

The LGPS SAB has published a news item on the impact of the rate change on the LGPS.

Investment | Freedom of Information Act requests on climate advice and data

The LGPS SAB has issued a statement in this area.

Green Day | Updated net zero and green finance strategies

The government published over 2,500 pages of decarbonisation policy and data on 30 March 2023, named "Green Day".

It had been required to publish an updated net-zero strategy by the end of March, as a result of a court decision last year that its previously published strategy did not comply with its obligations under its own climate change legislation. Alongside what it needed to publish to comply with the court ruling, the government published its updated Green Finance Strategy and consultations on carbon leakage (including a UK carbon border adjustment mechanism), zero-emissions vehicle and sustainable aviation fuels mandates and planning policy changes.

Our Insight considers the different government announcements. The updated Green Finance Strategy contains a number of commitments which are relevant to pension schemes. We will provide more detail about these in our Q3 2023 Pensions Action Plan, due to be released at the beginning of May.

The Pensions Regulator | Guidance on equality, diversity and inclusion

The Pensions Regulator has released guidance for governing bodies and guidance for employers on how to improve equality, diversity and inclusion (EDI) in pension scheme governing bodies.

"Governing bodies" includes the scheme managers and pension board members of public service pension schemes.

The guidance suggests a series of actions, including: training on EDI; developing and maintaining an EDI policy and improvement plan; updating role descriptions and succession plans; and reasonable adjustments.

Spring Budget 2023 | Additional HMRC guidance

We reported the pensions tax announcements made at Spring Budget 2023 in our last newsletter and connected Insight.

Since we published our Insight, HMRC has published additional guidance: a more detailed lifetime allowance guidance newsletter (since updated in respect of the collection of tax on lump sum death benefits in excess of the lifetime allowance), along with notes on taking higher tax-free lump sums with lifetime allowance protection and losing lifetime allowance protection.

HMRC has also updated its pension scheme rates and allowances note, and published updated versions of protect your pensions lifetime allowance, check your pension scheme member's protection status and information pension scheme administrators must give to members.

Pensions Dashboards | New guidance

The Pensions Administration Standards Association (PASA) has issued two guidance notes.

The first is an addendum to its data matching convention guidance, addressing matching without a national insurance number and possible match responses. (Schemes might also be interested in this blog post by Government Actuary's Department.)

The second is a note containing a series of specimen answers to questions that scheme members might ask about pensions dashboards, intended to support consistent messaging across the pensions industry.

PASA confirm that, for the time being, the answers in the second note are intended for use (in a call script if helpful) in cases where a member contacts a scheme with a question. It plans to release separate guidance on what schemes should proactively tell members in due course.

PASA also acknowledge that schemes might need to adapt the suggested answers to their circumstances. However, if the industry provides "consistent core reactive messaging, this will ensure savers with multiple pensions won’t receive conflicting messages".

State pension age | Results of review published

The Government Actuary's Department has released a technical bulletin on the outcome of the second government review of the state pension age. The key decisions were that the increase "from 66 to 67 will take place between 2026 and 2028, as legislated in the Pensions Act 2014" and the "review makes no changes to the planned increase … from 67 to 68, which is currently legislated to take place between 2044 and 2046".

Collective defined contribution schemes | First scheme authorised

The Pensions Regulator authorised the UK's first collective defined contribution (CDC) scheme – also known as a collective money purchase scheme – the Royal Mail Collective Pension Plan, on 13 April 2023.

Although this development is most relevant to employers and trustees in the private sector, you might like to read our Insight, which explores CDC schemes and their potential to change the pensions landscape.

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:

• Public service pensions: Impact of pension tax rules on NHS consultants and GPs;
• Finance (No.2) Bill 2022-23;
• Pension tax relief: The annual allowance and lifetime allowance;
• Pension scams;
• Pensions (Extension of Automatic Enrolment) (No. 2) Bill.

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