UK Public Service Pensions Update | November 2024
Published on 21st Nov 2024
Welcome to the latest edition of the UK Public Service Pensions Update
Major developments
Mansion House speech: acceleration of LGPS asset pooling and other reforms
The UK chancellor in her Mansion House speech on 14 November unveiled plans to create what she described as Canadian and Australian-style "megafunds" to power growth "in our economy and start the most significant set of changes to the pensions landscape since the Turner Review, underpinned by a clear commitment to legislate for these changes" in the Pension Schemes Bill expected next year.
The detail of these proposals and planned legislative changes was set out in three documents published alongside the speech: the government's interim response to phase one of its pensions review, a "Fit for the Future" consultation on reforms to the LGPS and a consultation on unlocking the UK defined contribution (DC) pensions market for growth.
(We consider the consultation relating to the accelerated pooling of LGPS assets in this Insight. We consider the interim response to phase one of the government's pensions review and consultation relating to DC schemes in this Insight.)
The LGPS Scheme Advisory Board (SAB) has welcomed the clarity provided in the consultation relating to the LGPS and confirmed that it will publish its response to the consultation "as soon as practicable". It will also "work with funds, pools and the government to ensure that that change will be beneficial for members and employers, and that their best interests remain at the heart of the LGPS."
Administering authorities and their asset pools will want to consider carefully the detail of the government's proposals in the LGPS consultation document and respond before the consultation closes on 16 January 2025. They will also need to work at pace to submit a proposal, by 1 March 2025, setting out how they would deliver the planned pooling model and complete the transfer of all assets by March 2026.
The government's final report on phase one of its pensions review is expected in spring 2025 and the Pension Schemes Bill is expected at some point in 2025.
UK Budget: change to inheritance tax treatment of pension and lump sum death benefits
The UK chancellor delivered the first Budget of the new government on 30 October. Our summary of the key pensions-related announcements is here. Our analysis of the impact of the announcement that lump sum death benefits and unused DC funds will, from April 2027, form part of a member's estate for inheritance tax purposes is here.
There does not seem to be any exemption from the planned changes for public service pension schemes and their members, and so funds might like to review and respond to the technical consultation on the inheritance tax change.
The NHS and judicial schemes (which are already treated as part of a deceased member's estate for inheritance tax purposes) may wish to respond to the consultation to confirm whether the suggested changes to the process for reporting and paying any inheritance tax due will simplify matters.
The Finance Bill has been published and contains the provisions announced at Budget in relation to scheme administrators and overseas pensions and transfers. Draft legislation in relation to the inheritance tax change is expected next year.
HMRC pension schemes newsletter 164 addresses the changes announced by the chancellor.
Focus on the LGPS
Updated administrator guide to the McCloud remedy
The Local Government Association (LGA) has published version two of its LGPS administrator guide to the McCloud remedy. Funds should refer to the updated guide, which is dated 11 October 2024 and available in the administrator guides and documents section of the LGA's website.
Updated funding strategy statement guidance
The LGPS SAB has published a news item in which it confirms that updated guidance for funds to follow when preparing the funding strategy statement is expected by the end of the year. The guidance has recently been agreed by the board’s compliance and reporting committee, as well as the Chartered Institute of Public Finance and Accountancy.
The LGPS SAB said that, following board approval at its next meeting on 25 November, the guidance will be submitted to Ministry of Housing, Communities and Local Government for ministerial approval and adoption as statutory guidance.
LGA shares new legal opinion on investment
The Local Government Association (LGA) has obtained and shared an opinion from Nigel Giffin KC in order to help LGPS administering authorities to assess and respond to the letters that some have received alleging that they are acting unlawfully by holding, and failing to divest from, investments in companies linked to the ongoing situation in the Middle East. Specifically, it reported that counsel was asked "for an opinion on the allegation that funds might face future criminal action by the International Court of Justice or have liability in domestic law under the Terrorism Act 2000 or the International Criminal Court Act 2001, as a result of holding such investments."
In the opinion, Nigel Giffin KC also confirms that he is in the process of preparing for the LGA a separate opinion to "update and elaborate upon more general advice…in 2014 concerning the nature and extent of the duties of administering authorities in relation to the investment of funds, and…non-financial factors in the taking of investment decisions. That advice will address, in a wider context…problems of climate change, and government policy ambitions for the investment of pension funds, as well as boycott and disinvestment campaigns of various kinds, questions such as the dividing line between financial and non-financial, and what authorities may, may not, or might in future be compelled to do by way of consideration of such questions, pursuant to their ordinary public law and fiduciary duties."
Department for Education guarantee for further education bodies
The Department for Education (DfE) has put in place a guarantee to provide assurance to LGPS administering authorities that they should treat further education (FE) bodies "equitably with the academy and local authority sectors and be offered access to the lowest risk employer funding strategies when setting: employer contribution rates; the deficit recovery period; and funding strategies." The guarantee covers FE corporations, sixth-form college corporations and "designated institutions who are bodies set up under the Further and Higher Education Act 1992 and are legally obliged to offer their non-teaching employees membership of the LGPS."
The LGPS SAB has published a news item on the guarantee which gives more information and confirms that it has "sought confirmation from the DfE that this guarantee does not cover Higher Education institutions and covers only the organisations that were reclassified as public sector by the Office for National Statistics in November 2022."
LGPS SAB recommends separation of pension fund accounts
The LGPS SAB has written to the Ministry of Housing, Communities and Local Government to repeat its recommendation that pension fund accounts be separated from administering authority main accounts.
The letter explains that "delays in the preparation and publication of the administering authority’s main accounts impacts on the publication of each LGPS fund’s annual report and statement of accounts. There is also…a further knock-on effect on many of the scheme’s 20,000 employers’ ability to prepare and publish their own annual report and statement of accounts…[and impact] on the Board’s efforts to pull together the scheme-level annual report it produces each year."
The LGPS SAB confirms that this recommendation was accepted by the previous government and suggests that the change might be included in the planned Audit Reform and Corporate Governance Bill, Pension Schemes Bill or Devolution Bill.
The letter suggests that separation "might also be used as an opportunity to review and streamline the reporting requirements on pension fund accounts, and to modernise the existing rights to question and object to [them in view] of a growing tendency for activist groups to raise vexatious questions or objections to pension fund accounts as a campaign tactic."
Investment: FRC consults on revised stewardship code
The Financial Reporting Council (FRC) is consulting on changes to the UK stewardship code. The consultation will be open until 19 February 2025 and the proposed changes include amending the definition of stewardship, streamlining the principles, tailoring the service provider principles, issuing "guidance to support signatories in demonstrating how they have implemented stewardship throughout the year" and introducing policy and context disclosures "to be updated only as necessary".
The landing page for the consultation includes a form that stakeholders can complete to express their interest in attending a round table discussion in December, January or February. It also confirms that current signatories to the UK Stewardship Code 2020 "should report as usual in 2025 to maintain signatory status." The FRC "will provide information to signatories upon launch of the updated Code to ensure a smooth transition ahead of reporting in 2026."
All schemes
Open consultations: the Teachers', Firefighters' and Police Pension Schemes
The DfE has opened a consultation on "proposed amendments to the Teachers' Pension Scheme Regulations…to adjust the member contribution rates following the most recent valuation" and to update the existing Fair Deal provisions to include FE colleges and make other minor amendments to ensure the regulations are up to date and accurately reflect the department’s policy. The consultation will close on 23 January 2025.
The Home Office has opened a consultation on proposed updates to the Firefighters' Pensions Scheme member contribution structure, and a consultation on proposed updates to the Police Pensions Scheme member contribution structure. These consultations will close on 29 January 2025.
Pensions dashboards update
The minister for pensions has confirmed that, while the government "supports the principle of enabling multiple commercial pensions dashboard services", it will prioritise the launch of the government-backed MoneyHelper dashboard and allow a period where "only the MoneyHelper dashboard is operational.… [to] provide an opportunity to obtain better insights into customer behaviour and ensure greater confidence in operational delivery, security, and consumer protection before facilitating the connection of commercial dashboards."
In the same statement the minister confirmed that the government remains "committed to the existing published timetable for…connection" and that it is "essential that the pensions industry continues to prepare for connection, having regard to the timetable set out in DWP’s guidance."
Funds should continue their preparations to connect and ensure that their project plan is complete, up to date and running to time. The Pensions Dashboards Programme continues to update its materials and the Pensions Administration Standards Association has released the first part of its "dashboards toolkit", sharing tools to support schemes in addressing additional voluntary contributions.
The minister's statement comes at a time when there are reports that the Pensions Regulator (TPR) has started to contact schemes to ask them to account for how they are measuring and improving their data.
HMRC update on new regulations for the removal of the lifetime allowance
In our October newsletter, we flagged two sets of regulations introduced to address problems identified with the legislation that removed the lifetime allowance. HMRC has now published (and subsequently updated) pension schemes newsletter 163 to provide more information about the regulations and about payroll reporting changes for certain lump sums.
Pensions Ombudsman: updated resources for use and signposting
The Pensions Ombudsman has published a series of new or updated factsheets and refreshed the '"How to avoid the Ombudsman" section of its website.
The new or updated factsheets are who we are and what we do, complaining to the party-parties at fault, how we investigate complaints and the resolution team.
Anyone who considers complaints received from pension scheme members and beneficiaries might wish to review these factsheets and consider how and when it could be helpful to signpost them to members.
They might also like to review the updated "How to avoid the Ombudsman" pages, which include top tips for avoiding the ombudsman, the answers to some frequently asked questions and a link to a series of case studies, which can be searched and filtered by complaint topic, type and outcome.
Petition for a change in the law: HMRC treatment of fraud victims
The Pensions Scams Industry Group (PSIG) has launched an industry-wide petition to secure support for change in the way HMRC treats pension and investment fraud victims.
PSIG is asking for a change in the law to give HMRC "the power to waive or reduce tax charges" of up to 55% plus interest "in cases where losses were due to dishonesty or misconduct by a third party, to avoid placing added unbearable financial and psychological burdens on people who have already lost everything."
The related press release explains that 10,000 signatures are needed to "force a debate at Westminster and a chance of change".
The Pensions Regulator's digital, data and technology strategy
The Pensions Regulator has published a digital, data and technology strategy, describing "a set of missions over our five-year plan to renew our capabilities in digital, data and technology" to embrace new ways of working and technology, and drive efficiency, automation and innovation. The strategy also asks the pensions industry to work with the regulator "to foster innovation across the pensions sector, enable safe experimentation of new business models and pension technologies, improving market competition and value."
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.
This newsletter covers developments relating to public service pensions in England and Wales, with a focus on the Local Government Pension Scheme.
