What's coming up in pensions

• TPR’s ‘General Code’ has now been laid in Parliament and will come into force on 27 March 2024. See our Insight for more detail. TPR’s response to the Code consultation looks in part at the way the Code works for public sector schemes, and the changes in this respect made from the draft version. Among other things, the language has been clarified by removing reference to ‘pension boards’ from its definition of governing body (as obligations tend to fall on the scheme manager; those expectations specifically on pension boards are clearly referenced). Other changes cover internal dispute resolution procedures.

  Public sector schemes should review the finalised Code to understand what actions should be taken and who is deemed responsible for each – and governance should of course remain a standing agenda item going forwards. While TPR’s recent research on governance and administration showed that the public sector had high standards of governance in place, the Code nevertheless provides an opportunity for funds to review their current practices. The Scheme Advisory Board (SAB) welcomed the publication of the Code; it is studying how the Code’s requirements align with items on its workplan, such as the 2021 SAB Good Governance recommendations, and it will produce new or update existing guidance to assist funds with their responsibilities.

• Schemes should also ensure they are conversant with other recent TPR guidance, for example its recently-updated cyber security guidance. Among other things, this guidance now asks that ‘significant cyber incidents’ are reported to TPR ‘on a voluntary basis, in an open and co-operative way, as soon as reasonably practicable’ (in addition to, for example, making any necessary breach of law report, and informing the ICO). Cyber threat continues to rise and schemes must ensure their controls are equal to the risk. Recent surveys have found, for example, that a substantial proportion of funds rely on their sponsor authority to provide cyber security, with only one fifth having their own dedicated cyber policy or having fully assessed third party cyber risk. TPR’s recent report on the Capita cyber security incident highlights key learnings and key steps for schemes.

• Pensions received top billing in the Autumn Statement in late November, with investment for growth and consolidation key themes as expected. Announcements specifically relating to public sector pension funds included confirmation of plans to utilise the LGPS to boost investment. Despite concerns, the March 2025 deadline for funds to transfer listed assets to pools remains.
• The ensuing Finance Bill currently awaits second reading in the Lords on 21 February. Alongside changes to the Lifetime Allowance regime, it contains provisions to modify how the pensions tax framework applies to certain public sector redress payments, to align schemes in relation to the McCloud judgment (see further below).
• HMRC has published the draft Finance Act 2004 (Registered Pension Schemes and Annual Allowance Charge) Order 2024 for consultation. This provides for pensionable service in legacy and reformed public sector schemes to be combined for the purposes of calculating an individual's pension input amount against their Annual Allowance, following the changes announced in the Spring Budget. The consultation closes on 26 February. Schemes should also be aware of guidance issued including HMRC pension schemes newsletter 154 (which covers annual allowance issues).

The Public Service Pensions and Judicial Offices Act 2022 (PSPJOA) started the process of remedying McCloud unlawful age discrimination.

We have recently received:

• A consultation on draft regulations which, among other things, build on the PSPJOA to deliver the McCloud remedy for judges (offering a choice of legacy scheme or 2015 scheme membership for the period 1 April 2015 to 31 March 2022). Updated regulations are expected shortly, “with a view to running the options exercise in 2023".

• A Treasury direction to accompany the remedy regulations for the judicial schemes (above), the Local Government Pension Scheme (LGPS) and other public service pension schemes. The direction includes provisions on the payment of compensation to members and interest.

• A consultation on the draft Public Services Pension Schemes (Rectification of Unlawful Discrimination) (Tax) Regulations, and guidance. These aim to modify pensions tax legislation in relation to those impacted by McCloud and to put affected members in the tax position they would have been had the discrimination not happened. HMRC will publish related guidance for members in due course.

We expect:

• Further consultation on regulations to implement the second phase of the McCloud remedy for Civil Service schemes (including the “deferred choice underpin”), which is due to come into effect before a long-stop date of 1 October 2023.

• A response to the consultation on amendments to the statutory underpin for the LGPS (alongside related regulations), which has been delayed from 2022. The regulations will be subject to a further period of consultation, with the aim also of coming into force on 1 October.

• Further consultations on additional aspects, including on new statutory guidance on remedy implementation.

• A Judicial Review into McCloud remedy costs began at the end of January 2023; the outcome is awaited.

Amendments to the Firefighters’ Pension Scheme came into force on 1 October. These allow for an options exercise giving certain categories of individuals employed as retained firefighters between 7 April 2000 and 5 April 2006 the opportunity to purchase additional pension entitlement in respect of pre-1 July 2000 service, following the Employment Tribunal decision in Matthews v Kent and Medway Towns Fire Authority. The regulations also deal with the interaction between the Matthews and McCloud remedies. Fire and Rescue Authorities are expected to commence the options exercise as soon as practicable. An indicative implementation timetable is discussed.

• In the wake of improved market conditions and funding levels, SAB has issued a statement on the topic of fund surpluses which aims to provide assistance to LGPS fund officers, employers, committee and board members, as well as advisers and scheme members. It covers topics such as funding strategy, contribution rates and partial termination.
• SAB has published a report it had commissioned on the LGPS and Sharia law compliance. The report concluded that as a part of the contractual arrangement between employer and employees, Muslim employees can continue to contribute to, and benefit from, ‘the excellent benefits offered by the LGPS’ while remaining Sharia compliant.
• Academy conversions: in response to a recommendation in the 2019 fund valuations report from GAD, the SAB has prepared guidance on common actuarial approaches adopted by LGPS funds on local authority schools’ conversion to academy status. The guidance covers topics such as conversion methodologies, treatment of surpluses on conversion and factors influencing the methodology adopted, and a guide to terminology.

• TPR’s Public service pension schemes research report 2023 has been published, tracking governance and administration practices among public service pension schemes, including the approach to risk management, annual benefit statements and breaches of the law. The report covers awareness and perceptions of pensions dashboards, and the actions taken by schemes in relation to climate-related risks and opportunities. This survey included new questions on data management issues, investment in data management and technology, TPR codes of practice and guidance, and pension board diversity.

• GAD will shortly be updating its actuarial Factor Guidance Notes for public service schemes. This follows completion of a major actuarial factors review project.