UK Public Service Pensions Update | March 2024

This month, we consider a range of developments including the Spring Budget 2024, the latest on the removal of the lifetime allowance from 6 April 2024, the outcome of the consultation on reform of the general levy, new resources on social and environmental factors in investment and a recent Pensions Ombudsman decision. We also give a reminder about the Pensions Regulator's new general code of practice. 

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

Spring Budget 2024 | Two announcements affecting the LGPS 

The chancellor of the exchequer delivered the Spring Budget 2024 on 6 March 2024. The main pensions-related announcements were as follows and most have a common theme of encouraging increased UK equity investment in line with the priorities in the government's 2023 Mansion House speech. There were two announcements affecting the Local Government Pension Scheme (LGPS).

• "Revised annual reporting guidance will require LGPS funds to provide a summary of asset allocation, including UK equity investment, as well as provide greater clarity on progress of pooling, through a standardised data return, taking effect from April 2024."
   
• Private sector defined contribution (DC) schemes will be subject to similar requirements. The Financial Conduct Authority will hold a "Value for Money" (VFM) consultation this spring. The consultation will "include proposals to require the publication of contract-based … DC … default funds’ historic net investment returns and a breakdown of their UK investments. Proposals will require schemes to compare their performance, costs and other metrics against those of at least two schemes managing over £10 billion in assets. This is an initial level expected to increase significantly over time. In coordination with the FCA the government will legislate at the earliest opportunity to apply the VFM framework across the market and provide the Pensions Regulator with new powers, using secondary legislation if necessary to ensure key disclosures are in place by 2027."
   
• The government is going to work with the LGPS "to consider the role they could play in unlocking investment in new children’s homes." This announcement sits alongside a government decision to commit "£45 million match funding to local authorities to build an additional 200 open children’s home placements, and £120 million to fund the maintenance of the existing secure children’s home estate and rebuild Atkinson Secure Children’s Home and Swanwick Secure Children’s Home …[to].. reduce local government reliance on costly emergency provision and improve outcomes for children by providing them with more suitable placements. The government will also be developing proposals on what more can be done to combat profiteering, bring down costs and create a more sustainable market for residential placements which it will publish later this year."
   
• The government is committed to exploring a "lifetime provider" model for private sector DC pension schemes. Also known as "pot for life", this new model would give people a right to stay in the same pension scheme, and to require a new employer to pay pension contributions into that scheme, when they change jobs. (It would also be at the right scale to consider investment in UK alternative assets.) 

Removal of the lifetime allowance | Regulations and further guidance 

Since our last newsletter, HMRC has published and updated a March 2024 lifetime allowance guidance newsletter, and the Treasury has made a set of amending regulations (The Pensions (Abolition of Lifetime Allowance Charge etc) Regulations 2024).

The regulations make a number of changes to the newly enacted Finance Act 2024 and related legislation. These include changes to the conditions for payment of the new pension commencement excess lump sum and the introduction of a statutory override to help to preserve any provision in the rules of a registered pension scheme which caps a member's benefits with reference to the lifetime allowance or lifetime allowance charge. 

Funds might like to read our Insight, which gives an overview of the changes and suggests actions for trustees and employers, some of which will also be relevant to public service schemes. HMRC newsletters on this topic (expected every two weeks) can be found on this collection page. 

New regulations | Pensions tax 

In our February 2024 newsletter we reported that HMRC had consulted on a draft order containing "provisions for pensionable service in specified legacy (closed) and service in a reformed (open) public service pension scheme to be combined for the purposes of calculating an individual’s pension input amount against their Annual Allowance. …This will allow the offset of pension input in a legacy scheme against input in a reformed scheme where they relate to the same employment." 

The relevant regulations have been made and will come into force on 6 April 2024. 

General levy | Option two adopted 

The Department for Work and Pensions (DWP) has published the outcome of its consultation on changes to the rates of general levy on pension schemes. This levy recovers the funding provided by the DWP for the core activities of The Pensions Regulator, the activities of The Pensions Ombudsman, and the pensions-related activities (other than Pension Wise) of the Money and Pensions Service. 

The government has decided to proceed with option two: to retain the current levy structure and increase rates by 6.5% per year for all schemes from 1 April 2024. The regulations making the change are here. 

NHS Pension Scheme | New regulations 

The National Health Service Pension Schemes (Amendment) Regulations 2024 have been made and will come into force on 1 April 2024. The regulations make changes to member contributions and implement "a new employer contribution rate in the 2015 Scheme in line with the results of the 2020 actuarial valuation of the scheme." They remove "the potential abatement of pension where members who draw their pension early using historic special class rights in the 1995 Section subsequently return to NHS employment …[, extend] eligibility for the partial retirement option to include scheme members who have accrued maximum pensionable service in the 1995 Section and clarif[y] that reducing pensionable pay or earnings by entering a salary sacrifice arrangement does not count towards the requirement for members to reduce those earnings as a condition of taking partial retirement." The regulations also confirm "that additional hours worked up to full-time are pensionable except where a member has taken partial retirement in the preceding 12-months", make "provision for periods of carer’s leave to be treated as an authorised absence from work, further to the Carer’s Leave Act 2023" and "changes connected to the abolition of the lifetime allowance …[to]…ensure existing scheme rules continue to operate as intended and accommodate new requirements arising". 

Reminder | The Pensions Regulator's general code 

The Pensions Regulator's general code of practice is expected to come into force on 27 March 2024. 

A number of changes have been made to the code to take account of the position of public service pension schemes. Funds need to consider the final code and decide what action they need to take in order to improve governance and meet the Pensions Regulator's expectations for compliance with legal requirements. You can read more in our Insight. 

Investment | Social factors and climate change 

The Taskforce on Social Factors has released the finalised version of its guide on considering social factors in pension scheme investment. LGPS funds might like to consider the guide alongside existing legal requirements and statutory guidance. 

LGPS funds might also like to note and consider three other resources and developments.

• The set of best practice case studies on social factors published by the Pensions and Lifetime Savings Association; and
• The recently released report of the Financial Markets Law Committee: Pension Fund Trustees and Fiduciary Duties: Decision making in the context of Sustainability and the subject of Climate Change.
• The government's confirmation, at Spring Budget 2024, that it will regulate the provision of environmental, social and governance (ESG) ratings, "where these assessments of ESG factors are used for investment decisions and influence capital allocation. This will improve clarity and trust in ESG ratings. A full consultation response and legislative steps will follow later this year."

Investment | Review of UK stewardship code 

The Financial Reporting Council has announced a review of the UK stewardship code 2020. The review will focus on a number of topics, including the extent to which the code "supports long term value creation through appropriate investor-issuer engagement that drives issuers’ prospects and performance, creates reporting burdens on issuers as well as Code signatories and has led to any unintended consequences, such as short-termism in targets and outlook for issuers." LGPS funds might like to read more here. 

House of Commons Library briefing papers | New and updated 

The House of Commons library has published or updated the following briefing paper, which might be of interest to public service pension schemes and employers.

• Public service pensions – response to McCloud 

Pensions Ombudsman | Recent decision 

The Pensions Ombudsman has partly upheld a complaint by the partner of a member of the LGPS in relation to the relevant council's decision not to award him a lump sum death grant or cohabiting partner’s pension following the death of his partner. The ombudsman directed the council to pay £500 in recognition of the non-financial injustice suffered by the surviving partner because of its failure to inform him in a timely manner that his application for a death grant had been unsuccessful. (CAS-92836-R6B0) 

Why should I read the decision? It considers key principles to apply when taking death grant decisions. It also considers the LGPS rules for pensions for cohabiting partners and the meaning of financial dependency and financial interdependency. 

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