UK Public Service Pensions Update | June 2024

This month, we consider the impact of the UK general election on pensions and look at recent developments ranging from new statutory guidance on the McCloud remedy through to changes to Pensions Ombudsman procedure following an operating review. 

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

UK general election | Impact on pensions and the LGPS 

On 22 May 2024, the prime minister announced that there would be a UK general election on 4 July. Following that announcement, Parliament was prorogued on 24 May and then dissolved on 30 May. 

There was a two-day parliamentary "wash-up" period on 23 and 24 May, when some legislation was rushed through before Parliament was prorogued. This did not include The Economic Activity of Public Bodies (Overseas Matters) Bill. The result is that, if the next government decides to revive this (with or without amendment), they will need to introduce a new bill to start the parliamentary process again. 

The announcement of a general election has also delayed a second set of amending and supplementary regulations needed to correct errors and address other points in connection with the removal of the lifetime allowance with effect from 6 April 2024. The new government will need to take a conscious decision to continue with those regulations. 

Our Insight considers what the Conservative and Labour Party manifestos say in relation to employment, pensions and immigration. Labour's plan for financial services gives some detail about what we might expect in pensions. The plan includes the following statements. 

"Labour will review the current state of the pensions and retirement savings landscape following the reforms of the early 2000s and the welcome introduction of auto-enrolment in 2012 to evaluate whether the current framework will deliver sustainable retirement incomes for individuals. This will mean working with industry and consumer groups to ensure savers are getting the best possible returns, and to identify and tackle the barriers to pension schemes investing more into UK productive assets – including cultural and regulation-induced risk aversion. 

"The review will look across the ecosystem – at all types of pensions and retirement savings plans (defined benefit, defined contribution, and public sector schemes including LGPS [Local Government Pension Scheme]), at corporate sponsors, at asset managers, and at VCs and private equity, and set out proposals to bring about an approach that will benefit both UK PLC and UK retirees." 

In the context of greater consolidation to "enable schemes to have access, expertise, and risk profile to increase their investments in long-term illiquid assets and therefore deliver higher returns for savers…. For LGPS, a Labour government will evaluate different models for pooling, including increasing in-house fund management capacity at the pool level, to deliver better returns for savers and increase investment in productive assets." 

In the context of enabling "the growth of regional financial centres alongside London and Edinburgh through initiatives to expand the footprint of the [financial services] sector", "[b]ased on the model of other pension funds, Labour will work with...LGPS to set out best practice for adopting similar, cost-effective in-house fund management capabilities within pools to deliver better returns for savers and create new jobs in regions and nations." 

After the election, there will be a State Opening of Parliament and King's Speech on 17 July. Notice of any primary legislation relating to pensions that will be taken forward in the first session will be given in the King's Speech, but Funds can also expect subsequent policy statements and announcements. 

The McCloud remedy | Statutory guidance 

The Department for Levelling up Housing and Communities has released statutory guidance for LGPS administering authorities in England and Wales on implementation of the McCloud remedy.

The guidance sets out the government’s views on how the remedy should be approached in key areas, outlines technical issues where the government wishes to provide certainty on how the remedy should be approached, and gives an overview of the legal framework for McCloud compensation, the conditions that must be met for compensation to be possible and examples of where compensation may be payable.

The Local Government Association has published the guidance on its website. 

The McCloud remedy | HMRC guidance

HMRC has confirmed, in a June 2024 newsletter, that it plans to re-open its "calculate your public service pension adjustment" service in mid-July 2024. HMRC has also made changes to three guidance notes relating to the McCloud remedy that it issued in October 2023.

The June 2024 newsletter lists changes which HMRC hopes to make to the calculation service before it re-opens in mid-July, changes it plans to make in September 2024, and a further change it is considering. It confirms that it plans to publish detailed guidance to help members using the service and gives a contact point for anyone who would like to volunteer to help it develop the changes. 

HMRC has also updated its October 2023 guidance on how to treat unauthorised payments following the McCloud remedy to remove the text headed "if the scheme paid the original charge", and updated the information in the Chapter 2 scheme "if there are differences in contributions in-scope years" section of its October 2023 guidance on correction of pension contributions following the public service pensions remedy. A minor change has been made to another October 2023 newsletter.

McCloud | Judicial review 

In our April newsletter we reported that the Court of Appeal had dismissed the appeals of the Fire Brigades Union (FBU) and the British Medical Association against the order made in their applications for judicial review of the Public Service Pensions (Valuations and Employer Cost Cap) (Amendment) Directions.

The FBU has now confirmed that, with the support of the Public and Commercial Services Union, Prison Officers Association, Royal College of Nursing and Unite, it is seeking permission to appeal to the Supreme Court. It argues that "the costs control mechanism cannot be used for a purpose for which it was never intended, and … that its use in this way discriminates against younger members of the schemes who have no opportunity to take advantage of the McCloud remedy." 

LGPS | New guide for LGPS employers and auditors 

The LGPS Scheme Advisory Board (SAB) has shared a new "informer" guide for employers and auditors on LGPS annual accounting reports and triennial valuations, key accounting requirements for employing bodies, and the role of external auditors. 

Administering authorities might like to check employers have a link to the guide.

The aim of the guide is to help employers with staff belonging to the LGPS "and their auditors to: interpret actuarial data, navigate key accounting and audit requirements, and understand the key information flows, and the roles of various professionals involved in them." It also includes a series of practical tools such as process maps and accounting templates, template questionnaires and a standard working paper index for accounts preparers. 

LGPS | Updated Funding Strategy Statement guidance 

The LGPS SAB has set up a working group to review and update its 2016 Funding Strategy Statement guidance, with the aim of getting a revised draft approved before the end of this year. Osborne Clarke's public service pensions team is a member of the working group.

The May 2024 Local Government Pensions Committee (LGPC) bulletin explains that the aim is to "deal more fully with the setting up of academies on conversion, cover the ‘new’ employer flexibilities and deferred debt arrangements, develop guidance on consulting with employers and other relevant parties, address recent employer representations around asset strategies and ‘partial terminations’, give pointers on policies needed for considering exit debts and credits …..[and] make the guidance shorter, sharper and more accessible for all stakeholders". It also reports that the ambition is to get a revised draft approved before the end of the calendar year. 

LGPS | Asset pooling, consolidation and other developments 

The May 2024 LGPC bulletin also refers to the letter (which was shared by the LGPS SAB) from the minister for local government to pension committee chairs and administering-authority section 151 officers in England asking them to respond to a series of questions around asset pooling and wider efficiency and consolidation by 19 July 2024. 

The LGPC bulletin says that "The Board presumes that the calling of the General Election for 4 July 2024 means that … responses are no longer expected, but it is possible that some administering authorities may wish to respond" and gives details of related events it arranged for June. 

The LGPS SAB has since confirmed that "Funds have been encouraged to respond to the minister’s letter dated May 15th by sending a response directed to the officials at the DLUHC pensions team to assist them with briefing new ministers post-election. The Board has issued a statement and drafted some suggested text for funds to include in their response to the letter."

The May LGPC bulletin's coverage also includes an update on the Good Governance consultation and the Pensions Regulator's General Code, updated member and employer guides, an update on pension commencement excess lump sums, an updated version of its guide to the abolition of the LTA, and an update on which pensions accounts qualify for McCloud protection. 

LGPS | Annual report and survey 

The LGPS SAB has published the eleventh annual report for the LGPS in England and Wales. The foreword explains that the aim of the report is to provide "a single source of information about the status of the LGPS for its members, employers, and other stakeholders", and that it "aggregates information supplied in the 86 fund annual reports, as of 31st March 2023". 

2020 valuations | GAD collection page

The Government Actuary's Department has released a guidance note containing links to all of the public service pension scheme 2020 valuations. 

Police disablement gratuity | Court of Appeal decision 

The Court of Appeal has ruled that regulation 12 of the Police (Injury Benefit) Regulations 2006 (payment of a disablement gratuity to a police officer who is injured in the line of duty and, within 12 months of receiving the injury, becomes totally and permanently disabled as a result of the injury) is not an occupational pension scheme. (Clark and another v Chief Constable of Derbyshire Constabulary and others.)

The appellants are two police officers who were injured in the line of duty but have not been paid a disablement gratuity because they did not become totally and permanently disabled within 12 months of the date of their injury. They argue that the 12 month cut off is discriminatory. An employment tribunal would have jurisdiction to decide a complaint of discrimination under section 61 of the Equality Act 2010 (implied non-discrimination rule in an occupational pension scheme) or under section 108 of that Act (discrimination in relation to conduct arising out of, and closely connected to, relationships that have ended). On appeal from the Employment Appeal Tribunal, the Court of Appeal has ruled:

• that regulation 12 does not fall within the definition of an occupational pension scheme in section 1 of the Pension Schemes Act 1993 because it "does not provide for the payment of benefits on retirement or on termination of service" (with the result that the claim under section 61 cannot proceed), but that
• an "employment tribunal does have jurisdiction to determine whether the conduct complained of does amount to unlawful discrimination contrary to section 108(1)" of the Equality Act 2010.

This conclusion meant that it was not necessary to consider a third ground of appeal.

Pensions Ombudsman | Changes following operating review 

The Pensions Ombudsman has published the first in a series of news items about changes it plans to make to its operating model. 

The first change it intends to make is to require all complainants to exhaust a scheme's internal dispute resolution procedure (IDRP) before asking the resolution team or the adjudication team to investigate. This will remove the current option of using the informal resolution service before or during a scheme’s IDRP process. 

The Pensions Ombudsman plans to pilot some aspects of this change and then move to "full implementation by autumn this year". It gives the details of a stakeholder forum on Thursday 27 June together with a link that readers can use to sign up to receive further updates.

In the news item, the Pensions Ombudsman service explains that it is "at the point, and [has] been for some time, where the demand for [its] services is outstripping [its] capacity to resolve cases for complainants and respondents in a timely fashion." Following the review it has completed of its operating model, it has "a clear plan for tackling [its] historical caseload and reducing .. queue lengths and waiting times." 

Volunteer advisers will still offer "impartial support to individuals prior to, or during, the IDRP process. This will be focused on supporting vulnerable members and cases, for example where the risk of financial harm is high or where there is a time-critical situation." 

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