UK Public Service Pensions Update | January 2025

This month we lead with six developments specific to the Local Government Pension Scheme (LGPS) before highlighting nine 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

Bodies respond to the government's "Fit for the Future" consultation

The government’s November 2024 "Fit for the Future" consultation closed on 16 January 2025. In advance of this deadline, the LGPS Advisory Board shared the response that it intended to submit. The Local Government Association has shared the response submitted by it and the Local Government Pensions Committee. Osborne Clarke contributed to a response submitted by the Association of Pensions Lawyers public sector pensions committee.

LGPS Advisory Board shares updated opinion on investments and non-financial considerations

The LGPS Advisory Board has shared Nigel Giffin KC’s updated opinion on fiduciary duty in the context of the LGPS. The report confirms that the secretariat "will now consider whether any further advice on specific points would be helpful and will work with funds to ensure instructions cover the pertinent questions and elements of most interest."

LGPS Advisory Board shares approved updated funding strategy statement guidance

The LGPS Advisory Board has reported that the Ministry of Housing, Communities and Local Government has approved the updated guidance for preparing and maintaining a funding strategy statement (FSS). The updated guidance and an accompanying key principles document can be found on the board's guidance page.

LGPS Advisory Board shares first annual review and priorities for 2025

The LGPS Advisory Board has published its first annual review. The review shares the key work undertaken by the board in 2024 and highlights priority work for 2025. Funds might like to read this short document which provides an extremely helpful overview.

LGPS Advisory Board responds to local audit reform consultation

The LGPS Advisory Board has shared its response to the government consultation "Local audit reform: a strategy for overhauling the local audit system in England". The board strongly encourages the government to propose legislation that would separate pension fund accounts from administering authority main accounts and explains how problems with local audit have had an impact on the timely publication of final audited pension fund accounts and caused delays in completing the audit of the accounts of employers which participate in the LGPS.

Local Government Association shares new and updated resources

The Local Government Association added three new or updated resources to its administrator guides and documents page in December 2024: pensions dashboard connection guidance, a club transfers and McCloud protection guide, and a club transfers and McCloud protection calculator. Updated template privacy notices were added in November.

All schemes

Inheritance tax consultation closes

The government's consultation on the proposed method for pension scheme administrators to report and pay any inheritance tax due on death benefits and unused defined contribution savings included in a member's estate after 5 April 2027 closed on 22 January 2025. The changes are likely to affect lump sum death benefits paid from most public service pension schemes (except the NHS and judicial schemes where they already form part of a member's estate for inheritance tax purposes) and additional voluntary contribution savings. Osborne Clarke was one of the many organisations who responded to the consultation. A consultation response and draft legislation are expected this year.

Firefighters' pensions | Further Matthews remedy changes

The Home Office is consulting on further changes to the Firefighters' Pension Scheme in connection with the Matthews remedy (provision of pension benefits to retained firefighters who were employed between 7 April 2000 and 5 April 2006 inclusive).  The consultation is open until 17 February 2025.

Police pensions | High court considers ill health retirement provisions

The High Court in Major v Chief Constable of Essex Police and another has considered the meaning of the provisions in the Police Pensions Regulations 2015 relating to retirement pensions payable on grounds of permanent medical unfitness.

In 2019, the selected medical practitioner assessed the claimant as medically unfit for performing the ordinary duties of a member of the police force, but did not consider that the unfitness was likely to be permanent. In 2023, the medical practitioner was asked to reconsider his original decision in light of additional medical information and reached the same conclusion. Because the claimant had not appealed the 2019 decision, the 2023 application was treated as a reconsideration. The claimant argued that this was incorrect and that the 2023 application should have been treated as a fresh referral based on his condition and prognosis in 2023.

The judge decided that, on the assumption that the 2023 process amounted to a reconsideration of the 2019 decision rather than a fresh referral, the medical practitioner should have issued a "fresh report" because he considered the claimant to be medically unfit for a further reason than he had identified in 2019. To cure this, the court issued a declaration that the medical practitioner should issue a fresh report including the additional diagnosis. The claimant would have a right to appeal once the fresh report had been issued.

Because of the assumption made to reach a decision on this point, it was not necessary for the judge to decide whether the 2023 referral was, in fact, a fresh referral rather than a reconsideration. For completeness the judge ruled that, in this case, the 2023 referral was a reconsideration. However, as a matter of principle, the regulations do not prevent an officer seeking a fresh decision as to whether or not he is permanently medically unfit. This does "not mean that police officers can repeatedly request referrals to a selected medical practitioner for the purpose of considering whether they should be compulsorily retired. It would no doubt be open to the Chief Constable to refuse the referral where the process was being abused.… Decisions would be final…unless there was a good reason for a fresh decision to be made: as a result of the passage of time along with the discovery of a different underlying medical condition or the deterioration of a previous condition."

Pensions tax | HMRC issues guidance for members who will not receive their pension input amount before the self-assessment deadline

HMRC pension scheme newsletter 166 (January 2025) notes that some public service pension schemes will issue pension savings statements for 2023 to 2024 late and gives guidance to members who, as a result, will not have the pension input amount they need to complete their self-assessment tax return before the deadline of 31 January 2025.

Pensions tax | HMRC flags 5 April deadlines for applying for tax protection

HMRC pension scheme newsletter 166 (January 2025) includes a reminder that the last date for applying for fixed or individual protection 2016 is 5 April 2025 and that, for some members, 5 April 2025 could also be the last date for notifying HMRC of entitlement to a "pension credit enhancement factor", "non-residence enhancement factor" or "recognised overseas scheme transfer enhancement factor".

Fixed and individual protection 2016 were introduced to help protect pension savings from the reduction of the standard lifetime allowance to £1 million on 6 April 2016. Following the removal of the lifetime allowance, the protections are still valuable because they apply to an individual’s lump sum allowance and lump sum and death benefit allowance.

The enhancement factors also retain a value: they allow some individuals to have their lump sum and death benefit allowance enhanced on specific relevant benefit crystallisation events.

Funds should consider reminding members of the deadlines for applying for these protections.

Pensions dashboards | Pensions Regulator shares updated materials

The Pensions Regulator has updated its pensions dashboard guidance (which includes a preparing to connect checklist) and shared the materials from a webinar it ran at the end of November 2024.

Funds might like to consider the action points flagged in the webinar, which include putting in place suitable (or updating existing) agreements with all of the parties involved in connection and automating value data to ensure you can to supply it in time. Funds should review their project plan for dashboard connection to ensure it is complete, up to date and running to time. They should also make sure that the connection of their scheme is scheduled into the workflows of their scheme administrator, scheme actuary and any third party through whom the scheme will connect.

IDRP | Pensions Ombudsman suggests actions for schemes

The Pensions Ombudsman's recent update on the latest developments in its operating model review confirms that all complainants must try to resolve their complaint through a scheme's internal dispute resolution procedure (IDRP) before applying to the ombudsman. The update also explains that the ombudsman has introduced an expedited decision-making process for cases with a clear outcome, and a "lead case" approach for industry-wide issues, or scheme-specific issues affecting multiple members.

The ombudsman suggests a number of actions for schemes to take. These include making sure that signposting to the ombudsman (for example, in IDRP decisions and on websites) is clear and up-to-date and letting the ombudsman know at an early stage if you have an issue that affects multiple members so that it can explore with you whether a lead case approach would be appropriate. Those responsible for handling IDRP complaints can also find lots of help and information on the recently updated "How to avoid the Pensions Ombudsman" pages.

Automatic enrolment | DWP confirms no change to thresholds

The Department for Work and Pensions has published the results of its most recent review of the automatic enrolment earnings trigger and lower earnings limit (LEL) and upper earnings limit (UEL).

The report confirms that there will be no change to these thresholds for the 2025/2026 tax year. The secretary of state has confirmed that the existing threshold of £10,000 for the earnings trigger remains the correct level and will be maintained for 2025/2026, the LEL will continue to be set at £6,240 and the UEL for automatic enrolment purposes will continue to be set at £50,270.

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.

• The Climate and Nature Bill 2024-25
• Public service pensions – response to McCloud
• Armed Forces Pension Scheme
• Sanctions against Russia (February 2022 to January 2025)
• Sanctions against countries supporting Russia’s invasion of Ukraine