Welcome to the latest edition of our Public Service Pensions Update.

In this edition, we focus on a private member's bill on exit pay, new rules for pensions transfers from 30 November and the latest on the costs cap and McCloud.

Cap on exit pay | Private members' bill

A new private members' bill contains provisions which would require HM Treasury to lay draft regulations to restrict public sector exit payments before Parliament by 1 July 2022. The regulations could take effect for any exit payment made on or after 1 April 2022.

This follows the revocation, earlier this year, of the Restriction of Public Sector Exit Payments Regulations 2020. The bill is scheduled for a second reading on 26 November 2021.

Judicial Review | Costs cap

Three unions have taken steps towards applying for judicial review of the Public Service Pensions (Valuations and Employer Cost Cap) (Amendment) Directions 2021 (discussed in our last newsletter).

The Fire Brigades Union, GMB and British Medical Association complain that the outcome of the costs control mechanism should result in a reduction in member contributions and or an improvement in benefits, but that HM Treasury directions undo this by factoring in the cost of the McCloud remedy.

Consultations | McCloud

The Home Office, Cabinet Office and Ministry of Defence are consulting on draft regulations to implement the first phase of the McCloud remedy in the police, firefighters', armed forces and civil service pension schemes with effect from 1 April 2022.

The first phase of the remedy is to "make changes to the scheme regulations, in line with the Public Service Pensions & Judicial Offices Bill, which will close the legacy pension schemes to future accrual from 31 March 2022 and ensure all members who remain in service from 1 April 2022 do so as members of the reformed scheme[s]" to "ensure … equal treatment going forwards".

The second phase of the remedy (choice of benefits for the remedy period of 1 April 2015 to 31 March 2022) will be implemented by separate regulations, and the government will consult on these in 2022.

The Home Office first phase consultations for the police and firefighters' pension schemes are open until 2 January 2022. Respondents are asked to comment on the draft regulations and on what and whether changes are needed to:

  • ensure that no new arrangements to buy additional service in a legacy scheme can be entered into after 31 March 2022;
  • achieve the right outcome for ill-health retirement applications which are made before 31 March 2022 but not decided until after that date; and
  • address the interaction of retirement ages between the legacy and new schemes (police pension schemes only).

The Cabinet Office first phase consultation for the civil service pension scheme is open until 17 January 2022. In addition to the draft regulations for the first phase McCloud changes (and some transitional questions), respondents are invited to comment on a proposal - subject to the outcome of the cost cap process - to extend the existing member contribution rate to apply from 1 April 2022 to 31st March 2023, and on other minor amendments.

The Ministry of Defence first phase consultation for the armed forces pension scheme is open until 31 January 2022. It invites comments on draft regulations to make the first phase McCloud changes (and transitional points). It also invites comments on other minor changes.

Transfers | All change on 30 November and webinar

On 30 November 2021, section 125 of the Pension Schemes Act 2021 and new regulations will start to apply to transfers.

In addition to existing checks, schemes will have to check whether one of two conditions is met before paying a transfer value to another scheme. They will also have to provide members with specific information about these new transfer rules.

The Pensions Regulator has released guidance, but the regulations are complex and schemes need to take legal advice and work with their administrators so that they are ready to apply the regulations from 30 November.

The first condition will be met if the administering authority is satisfied, beyond reasonable doubt, that the receiving scheme is established as a public service pension scheme, or is on the Pensions Regulator's list of authorised defined contribution master trusts or (once they have been introduced) collective money purchase schemes.

For transfers to any other type of scheme, the administering authority will need to consider the second condition. This involves taking a decision as to whether red or amber flags are present. If there are any red flags, the transfer cannot proceed. If there are any amber flags, the member must be referred to the Money and Pension Service (MoneyHelper) for pension scam-specific guidance – and provide evidence that they have taken that guidance – before the transfer can proceed. If the transfer is to an occupational pension scheme or a qualifying recognised overseas pension scheme, one set of rules will apply for deciding whether the second condition is met and it will always be necessary to ask the member for at least some additional information. If it is to a different type of scheme, for example, to a personal pension scheme, it might be possible to apply a different set of rules and take a decision without asking the member for more information.

On 24 November, we invited you to our 9 December webinar on these changes. We hope you will be able to join us on the 9th.

Other developments | Q1 2022 pensions action plan

We have released our Q1 2022 pensions action plan. Each action plan is a summary of changes and proposals in pensions law and regulation over the last quarter, most of which are also relevant to public sector pension schemes.

Pensions Ombudsman | Various

The Pensions Ombudsman has handed down decisions relating to recovery of instalments of widower's pension paid after the widower started to cohabit with a new partner, a member who changed their mind about the retirement lump sum option they would like to take, a member who argued that her pension had been miscalculated in respect of part-time working, and a member who complained about the way that a period of concurrent service had been dealt with.

Teachers' Pension Scheme (CAS-33273-M8R9) – recovery of widower's pension

Not upheld - a complaint by the widower of a member of the Teachers' pension scheme about the recovery of widower's pension paid after he started to cohabit with and later married a new partner. The ombudsman concluded that there was no contract to continue paying the pension, and the defences of change of position and estoppel were not made out. Limitation (six-year limitation period did not start to run until Teachers' pensions discovered or could reasonably have discovered the mistake) and a suitable repayment period (in this case, ten years) are also discussed.

Local Government Pension Scheme (CAS-34932-F0D2) – retirement lump-sum option

Not upheld - a complaint by a member of the Local Government Pension Scheme who changed their mind about the lump-sum option they would like to take after returning their retirement options form.

The NHS Pension Scheme (PO-26274) – part-time working

Not upheld - a complaint by a member of the NHS pension scheme that the NHS Business Services Authority miscalculated her pension in respect of part-time working since 2015. The Ombudsman concluded that the NHS BSA had correctly applied the regulations and was not responsible for the member's misunderstanding as to how benefits would be calculated. The quotation assumed no change in membership pattern, the booklet made it clear that it did not override the regulations and included a link to the regulations, and there was no evidence of the specific questions asked of NHS BSA by her IFA, or of the answers received.

Principal Civil Service Pension Scheme (CAS-42028-T9C8) – concurrent service

Not upheld - a complaint by a member of the Principal Civil Service pension scheme about the way that a period of concurrent service had been dealt with. There were extensive delays in clarifying service details and resolving the matter, but it had now been addressed and the member had received compensation in the form of the payment of the £200 additional member contributions required and £500 for distress and inconvenience.

House of Commons Library briefing papers | New and updated

The House of Commons library has published or updated the following briefing papers: