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).

Regulations implementing the retrospective part of the McCloud unlawful age discrimination remedy came into force on 1 October 2023. See our November newsletter for more detail. Since then, the Local Government Association has also released a guide for LGPS administering authorities on how underpin protection works. Further tweaks and clarifications to correct minor errors and omissions have also been made to the legislation, including by regulations in respect of Judicial Pensions and Police and Firefighters’ Pensions, to ensure that the remedy can be delivered correctly.

• Amendments to the Firefighters’ Pension Scheme came into force on 1 October, allowing certain categories of individuals employed as retained firefighters the opportunity to purchase additional pension entitlement in respect of pre-1 July 2000 service, following the decision in Matthews v Kent and Medway Towns Fire Authority. HMRC newsletter 155 gives information on the administrative steps now required by relevant schemes prior to the deadline of 5 April 2024. The recent Firefighters' Pension Schemes (Scotland) Amendment Order 2024 comes into force on 18 March, and mirrors the changes made to the equivalent schemes in the rest of the UK.

• 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.

• Labour’s recent pre-election ‘Plan for Financial Services’ states that it will undertake a review of the UK’s ‘pensions ecosystem’, including public sector schemes and the LGPS. In particular it will look at ‘enabling greater consolidation’ across all pension schemes, evaluating different models for LGPS pooling, setting out best practice for adopting cost-effective in-house fund management capabilities and at increasing investment in productive assets.

• The GAD technical bulletin following the Autumn Statement confirmed that Public Service schemes were in the process of finalising outcomes of the 2020 valuations, which determine employer contribution rates from April 2024 onwards. Completed valuations include the Police Pension Schemes (England and Wales) and of the Firefighters’ Pension Schemes (England).

• HMT has issued its covering note and multiplier tables to help scheme administrators correctly apply the annual increase to public sector pensions in 2024.

• Fair Deal: GAD has updated its guidance on Staff transfers: public service pension schemes to include the new actuarial assumptions used for broad comparability assessments for staff transferring between public sector schemes under Fair Deal 2013 and 2004. The new assumptions have been used for cases processed on or after 1 October 2023.

• The Economic Activity of Public Bodies (Overseas Matters) Bill, which contains provisions ‘to prevent public bodies from being influenced by political or moral disapproval of foreign states when taking certain economic decisions’ continues to progress, with its second reading in the Lords due on 20 February.