UK Public Service Pensions Update | December 2024
Published on 19th Dec 2024
Welcome to the latest edition of the UK Public Service Pensions Update
This month we lead with developments specific to the LGPS and then move on to those relevant to all public service pension schemes.
If you would like to discuss any of the items in this newsletter, please contact one of the experts listed at the end of the update.
Focus on the LGPS
LGPS Advisory Board shares materials on the government's 'fit for the future' consultation
The Local Government Pension Scheme (LGPS) Advisory Board has shared the slides and recording of a presentation on the current LGPS "fit for the future" consultation. The consultation was launched alongside the chancellor's November Mansion House speech and the presentation was given by Teresa Clay, head of local government pensions at the Ministry of Housing, Communities and Local Government (MHCLG). (Funds might also like to read our Insight on the "fit for the future" consultation.)
Chancellor responds to open letter on the pensions review and Mansion House reforms
The UK chancellor of the exchequer has responded to a letter sent by the Pensions and Lifetime Savings Association (PLSA) and 14 pensions industry signatories, including a number of LGPS signatories, to welcome the government's Pensions Review and the Mansion House reforms.
The letter says the LGPS "is a unique participant in the UK pensions market. With assets totalling more than £425 billion, the LGPS is the largest funded DB pension scheme in the UK and one of the biggest in the world. Since pooling was first announced, most funds have completed the transition of the great majority of their assets, which has resulted in cost savings and new UK investment opportunities. Yet much of the opportunity remains.
"We support the completion of the transfer of remaining assets and the articulation of the LGPS Pool model, supported by setting clear and realistic timelines to achieve this goal. A lot of good work is already in place across the LGPS, and administering authorities and pools should take care further work is done in a pragmatic way which maintains value and does not incur unnecessary investment losses or costs.
"The PLSA has long called for the implementation of the recommendations from the Scheme Advisory Board’s Good Governance Project to develop a common standard on governance and foster effective relationships between pensions funds and asset pools, so we are very pleased to see these proposals taken forward, as well as measures that support more investment into local areas.
"We also know that PLSA LGPS members are exceptionally committed to the regions they serve and welcome the opportunity for local investment."
LGPS Advisory Board seeks Ministerial approval for updated funding strategy statement guidance
Following board approval of the new guidance at its meeting on 25 November, the LGPS Advisory Board has written to the MHCLG to recommend ministerial approval of updated guidance for funds to follow when preparing a funding strategy statement. The letter also asks that the LGPS regulations be updated to require administering authorities to have regard to the new statutory guidance, instead of an earlier version.
PLSA publishes member guide on nature and biodiversity, and pensions industry establishes sustainability working group
The Pensions and Lifetime Savings Association (PLSA) has released a guide to help members to "deepen their knowledge and understanding of the key challenges associated with nature and biodiversity loss". The guide includes top tips and case studies. Earlier this year, the Pensions Regulator suggested that schemes consider developing their investment statements and policies to include nature-related risks and opportunities and or becoming early adopters of Taskforce for Nature-related Financial Disclosures (TNFD)
It has been reported that a group of 13 professional and member-nominated trustees has come together to launch the Trustee Sustainability Working Group, with the aim of driving better sustainable investment practices across the industry. The reports suggest that the group can be contacted through its chair, Bobby Riddaway of HS Trustees.
All schemes
GAD publishes updated Fair Deal guidance
The Government Actuary's Department (GAD) has published new guidance on treatment of pensions in staff transfers to, from and within the public sector. The note links to new guidance for contracting authorities on staff transfers between public service pension schemes, and on staff transfers from private to public service pension schemes. It also links to new guidance on broad comparability assessments and an updated note on differences between public service and private schemes in the area of security of pensions.
DHSC consults on changes to the NHS pension scheme
The Department of Health and Social Care is consulting on proposed amendments to the NHS pension scheme for April 2025. The consultation is open until 4 February 2025 and the suggested changes include retrospectively amending the definition of overtime in the 2015 Scheme to be pensionable up to whole-time equivalent hours, clarifying the method for calculating member contributions where pay reduces during a period of absence and allowing members who are affected by the McCloud remedy to revoke a deferred choice election or for a deferred choice election to lapse in certain circumstances.
Reports confirm that phase two of the government's pensions review is delayed
We have seen reports that the government has decided to delay the second phase of its pensions review.
Phase one of the review is focused on the LGPS and defined contribution (DC) pensions. In the previous edition, we reported that the government had published an interim report of phase one together with consultations on changes to the LGPS and to the DC pensions landscape. The final report on phase one is expected in the spring next year, and the Pension Schemes Bill (which is expected to include any primary legislation flowing from the consultations) at some point in 2025.
When the government launched the pensions review this summer it said that phase two would start later this year and would consider "further steps to improve pension outcomes and increase investment in UK markets, including assessing retirement adequacy".
Press reports suggest that the government has decided to delay phase two of the review because it will include suggested changes to automatic enrolment (widening its scope and or increasing the minimum contribution rates) and the government is concerned about placing any further burden on employers after the announcements made in the UK Budget.
Chancellor sets date for Spring forecast
The chancellor of the exchequer has confirmed that the spring forecast will take place on 26 March 2025. The related press release confirms that this is "in line with the Budget Responsibility and National Audit Act 2011 which requires the Office for Budget Responsibility to produce two forecasts each financial year" and will be accompanied by a statement to Parliament. However, the chancellor "remains committed to one major fiscal event a year" (expected to be in the autumn) "to give families and businesses stability and certainty on upcoming tax and spending changes and, in turn, to support the government’s growth mission."
The Pensions Regulator issues call to action on pension scams
The Pensions Regulator has issued a call to action following an EastEnders storyline highlighting the devastating impact of pension scams. In a press release the regulator urges the pensions industry to report scams and suspicions of scams to Action Fraud to "provide the valuable intelligence we and our Pension Scams Action Group (PSAG) partners need in the fight against fraudsters…. It is our hope that viewers of the EastEnders’ storyline will be prompted to report any suspicious activity to Action Fraud too. Every report counts, helping to enhance our national intelligence picture.”
Schemes might also wish to use the EastEnders storyline as a catalyst for issuing another reminder to members about pension scams.
PASA releases data scoring guidance
The Pensions Administration Standards Association has shared a guidance note on data scoring. The head of policy at The Pensions Regulator has welcomed the guidance "which gives practical suggestions on how administrators should approach scoring member data" and encouraged "scheme administrators and trustees to review their existing scoring approach to ensure they meet minimum requirements, and adapt the good practices highlighted in the guidance to score member data in a consistent way.” Schemes should discuss the guidance with their scheme administrators and agree actions to take.
HMRC releases new guidance and updates pensions tax manual
HMRC has published pension schemes newsletter 165. The newsletter gives HMRC's view on whether it is possible for a member to return a pension commencement lump sums (PCLS) or uncrystallised funds pension lump sums (UFPLS) that they took because of speculation before the October 2024 UK Budget, and says that "unauthorised payments charges may apply if contributions to pension schemes are made out of tax-free lump sums and the conditions for the recycling rule are met".
It also states that HMRC is updating the pensions tax manual to reflect the two sets of regulations recently made to complete the work to abolish the lifetime allowance, and answers some questions it has received about those regulations. Updates to the pensions tax manual are listed here.
The newsletter also contains information about the tax treatment of payments to trustees in bankruptcy.
FCA, TPR and ICO issue joint regulatory statement on member communications
The Financial Conduct Authority (FCA), the Pensions Regulator and the Information Commissioner's Office have issued a joint statement to help pension scheme trustees, managers and providers to understand how the Pensions Regulator's Code of Practice and guidance on communications requirements and the FCA Consumer Duty interact with direct marketing rules under data protection law and regulations including the UK General Data Protection Regulation, the Data Protection Act 2018 and the Privacy and Electronic Communications Regulations 2003 (the direct marketing rules known as PECR). Schemes might like to ask their scheme administrators whether the statement has any impact on their communications with members.
Government releases model for responsible innovation in data and artificial intelligence
The government has released a practical tool to help teams across the public sector and beyond to innovate responsibly with data and artificial intelligence (AI). The tool can help any "public sector team delivering a project which contains some element of data-driven technology or AI" and any "private sector team building an AI or data-driven tool which you plan to use for a public sector purpose, or has a significant societal footprint".
TPR shares its plans, priorities and a new style of regulation
At the end of November, the chief executive of the Pensions Regulator gave a speech at the DG Publishing Private and Public Pensions Summit welcoming the current reforms to the pensions landscape and setting out its plans and priorities. These included a shift "to a more prudential-style of regulation, addressing risks not just at an individual scheme level, but also those risks which could impact the wider financial ecosystem." Schemes might like to read the speech.
TPR releases two key elements of the new private sector DB funding regime
Following the entry into force of its new code of practice on private sector defined benefit (DB) scheme funding, the Pensions Regulator has formally published its "fast track" parameters. It has also published updated guidance on assessing the employer covenant.
Fast track is a "regulatory tool" which represents the Pensions Regulator's "view of tolerated risk where we are unlikely to engage with a scheme in respect of their valuation". It will not be possible or appropriate for all schemes to follow the fast track funding parameters and so there is an option to submit a "bespoke" valuation and provide more supporting information.
Employer covenant is another area of significant change. Under the new funding rules "covenant" is defined in legislation. Schemes have been waiting for the updated guidance on assessing the employer covenant to supplement the material included in the new DB funding code.
House of Commons library publishes new and updated briefing papers
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.
This newsletter covers developments relating to public service pensions in England and Wales, with a focus on the Local Government Pension Scheme.