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LGPS Bulletin – June 2018

We are pleased to introduce you to our first monthly LGPS bulletin that aims to help you to understand more about what is happening in the pensions industry. It includes issues that are impacting local government, as well as the ongoing changes to regulations and legislation being considered and introduced by the Government and industry regulators that affect pensions.

To read more, select from the links below: 

tPR publishes guidance on Cyber security principles

The Pensions Regulator (TPR) has published new regulatory guidance for trustees on cyber security principles for pension schemes.

The guidance defines cyber risk as “the risk of loss, disruption or damage to a scheme or its members as a result of the failure of its information technology systems and processes“. The guidance advises that schemes of all sizes should take steps to build cyber resilience by not only having the ability to assess and minimise the risk of a cyber-incident occurring, but also being able to recover if and when an incident takes place. The guide sets out good practice for all schemes which may be adopted proportionately to the profile of a particular scheme. 

HMRC AA calculator removed 

HMRC produced an online calculator to help individuals calculate their Annual Allowance (AA) position in a tax year. On 16 April, HMRC confirmed, “We are aware that since 6 April 2018 the Annual Allowance calculator is showing less Annual Allowance than is due for the year 2017-18 onwards, and we apologise to customers for this. We’re working to fix this issue as soon as possible.” After making this announcement, HMRC removed the calculator from its website while it’s being updated.

Burgess and others vs BIC UK Limited: overpayments and limitation periods 

A High Court decision handed down on 17 April 2018 has discussed the application of limitation periods when recovering overpayments made by pension schemes. The judgment in the case of Burgess and others vs BIC UK Limited was predominantly concerned with a question over the effective introduction of increases in a scheme; as a side issue, however, it also required the issue of overpayment recovery to be considered. 

The judge, Mr Justice Arnold, agreed with the employer’s view that recovery of overpayments applying the equitable right of recoupment (that is, offsetting past overpayments against future instalments of pension) was not restricted by the Limitation Act, holding that recoupment amounted to a future account adjustment rather than a claim for repayment of monies by a member. In doing so, the judge rejected the trustees’ argument that a six year limitation period should be applied, following the Webber case. 

This decision does not overrule the judgment in the Webber case, and leaves us with two High Court decisions taking different approaches to the subject. It remains to be seen how the Pensions Ombudsman will approach overpayment cases in light of the Burgess case. Schemes should continue to treat overpayments on a case-by-case basis. 

Regulations update SI2018/493 

Local Government Pension Scheme (Amendment) Regulations 2018 were updated on 19 April 2018.

What is the impact?

  • With effect from 1st April 2014 the survivor of any Tier 1 or Tier 2 ill-health retirement that occurred on or after 1st April 2014 will now be entitled to additional pension as the enhancement granted also counts toward survivor benefits (the original Regulation wording was flawed and resulted in survivor’s only being entitled to accrued pension);
  • With effect from 1st April 2014 members who aggregated previous LGPS benefits after 31st March 2014, where they had left service before 1st October 2006 and their Normal Pension Age was between age 60 and 65, now have a normal pension age of 65 for those aggregated benefits (the rule of 85 may still mean that they can be taken unreduced from an earlier age);
  • With effect from 1st April 2014 where the pay the member received was materially lower than the level of pensionable pay that member normally received during the period used for determining APP, the employer is given the right to increase that pay to reflect the level of pensionable pay that the member would normally have received.
  • With effect from 1st April 2014 slight changes in the definitions for eligibility to LGPS:
  • With effect from 14th May 2018 members with deferred benefits under the earlier regulations may now take voluntary early retirement from age 55 (rather than previously having to wait until age 60). With this is the extension of the regulations already there for Post 2014 members, whereby the employer (or the authority if that employer no longer exists) can decide whether or not to allow the full rule of 85 to apply, where the member satisfies the rule of 85 before age 60.
  • However, an unintended transitional issue has now arisen, due to the wording used. Members who left service before 1st April 1998 can elect for early retirement at age 55 but members over the age of 55 on 14th May 2018 are precluded from taking voluntary early retirement. MHCLG have confirmed that a further set of amending regulations will be needed and further changes by way of guidance or a correction slip are not possible.
  • An amendment has been made to confirm that a member does not have to meet both conditions of reaching re-enrolment date and going on no pay as a result of sickness, injury, or child-related leave (and remaining so at the start of the next pay period) in order for a 5050 election to be cancelled. 
  • An amendment has been made to confirm that a member only has to take benefits from their active pension account when employment is terminated at or after age 55 due to redundancy or business efficiency. This will help stop issues on strain cost exceeding the Cost Cap when Exit Payment reform is fully enacted.
  • An amendment has been introduced to allow for the possibility of an exit credit to be paid where an employer ceases in the scheme and their liabilities are fully funded and there is a surplus.
  • An amendment has been made to cater for the possibility of an exit credit to be paid where an employer may be required to make additional (strain cost) payments to include an employer’s waiver of actuarial reductions if a deferred member takes early retirement before age 60 and any of the early retirement penalty is waived.
  • An amendment has been made to confirm that where a Club Transfer occurs the administering authority must comply with the Public Sector Transfer Club memorandum.
  • An amendment to clarify that some bodies mentioned in the Schedule are not local authorities. Concerns voiced at the consultation concerning backdating admission agreements are recognised by Government and they intend to take a wider look at this aspect when dealing with the Fair Deal consultation.
  • An amendment has been made to mean, that individuals who have transferred-in from other Public Service schemes, who would have met the criteria for the statutory underpin if they had been in LGPS, are granted underpin protection.
  • An amendment has been made to limit members with deferred benefits, who were not active members immediately before and on 1st April 2014 of the 2014 Scheme, to having 12 months from date of joining or such longer period as the employer permits, to elect to aggregate benefits.
  • A standalone provision has been made to make clear that existing admission agreements are to be treated as if they were the subject of a determination under section 2(5) of PSPA 2013. Additionally, each administering authority has 12 months to publish a list of their current admission agreements 

Additional Voluntary Contributions (AVC) Risk Warnings 

Equitable Life have advised that they will no longer disinvest member AVC funds unless a risk warning has been given (when appropriate).

What is the impact?

The requirement is in the Disclosure of Information Regulations 2013. The duty falls to the managers of the scheme (Administering Authority) when a member is provided or has been provided with certain information about how they can access their AVC, in addition to an application form or another method of access, which enables the member to take payment of their AVC. The duty does not fall to the AVC provider. 

The Secretariat are working with the Communications Working Group (CWG) on a new Freedom and Choice AVC Guide. Template letters and risk warnings were published in March.

Contribution bands for 2018/2019

Pensions increased from 9 April 2018 by 3%, in line with the annual increase in CPI up to September 2017. Accordingly the draft contribution bands have been set out. 

What is the impact?

The table below sets out the draft contribution bands, which came into effect on 1 April 2018. These are based on the pay bands for 2017/18 as increased by CPI figure of 3%, with the result rounded down to the nearest £100.

Draft Contribution table 2018/19

Band

Actual pensionable pay for an employment

Contribution rate for that employment

 

 

Main section

50/50 section

1

Up to £14,100

5.5%

2.75%

2

£14,101 to £22,000

5.8%

2.9%

3

£22,001 to £35,700

6.5%

3.25%

4

£35,701 to £45,200

6.8%

3.4%

5

£45,201 to £63,100

8.5%

4.25%

6

£63,101 to £89,400

9.9%

4.95%

7

£89,401 to £105,200

10.5%

5.25%

8

£105,201 to £157,800

11.4%

5.7%

9

£157,801 or more

12.5%

6.25%

 

Public service pensions indexation and CARE revaluation 2018 – written statement 

Public Service pensions increased from 9 April 2018 by 3%, CARE accrual in the new public service pension schemes that increase in line with prices, will increase in line with the annual increase in CPI up to September 2017 by 3%.

What is the impact?

21 February 2018 a written statement by the Chief Secretary to the Treasury to the House of Commons, confirmed that: 

  • Public Service pensions increased from 9 April 2018 by 3%, in line with Consumer Price Index (CPI) up to September 2017. Public service pensions that have been in payment for less than a year will receive a pro-rata increase. PI multiplier have been published on HMT’s website.
  • CARE accrual in the new public service pension schemes that increase in line with prices, will increase in line with the annual increase in CPI up to September 2017 by 3%, plus any increase to the index rate adjustment specified in scheme regulations from 1 April 2018. 

High Court judgement in the case of Elmes v Essex - update

In previous bulletin 166 there was an update on the Nicola Elmes versus Essex County Council.

What is the impact?

The case was heard before High Court on Tuesday 18 January 2018.  It was declared that “The requirement to nominate a person under regulations 24 and 25 of the LGPS (Benefits, Membership and Contributions) Regulations 2007 is incompatible with Article 1 of the first Protocol to, and Article 14 of, the European Convention on Human Rights and must therefore be dis-applied”.

The Ministry of Housing, Communities and Local Government (MHCLG) have confirmed they are waiting for the Judge’s reasoning to be issued, before deciding if it has an impact on LGPS regulations. Once reasoning is issued, MHCLG will take a legal view on implications. 

At the technical group, it was identified that most authorities have not done anything pending receipt of MHCLG guidance. A few have identified cases that may be affected and could require further investigation and consideration.

Insolvency regime for further education and sixth form colleges: technical consultation – LGA response

Bulletin 166 and 167, the LGA responded to the consultation regarding Insolvency regime for further education and sixth form colleges 

What is the impact?

LGA made the point that if an employer becomes insolvent and the fund is unable to recover the deficit the employer owed at the point of their insolvency, the liability for picking up that employer’s pension liabilities falls on other employers in the fund. As the LGPS is a public sector pension scheme whose largest employers are local authorities that will often mean that ultimately the burden falls on the local taxpayer. 

LGA want to ensure all steps are taken to prevent risk arising that pension liability of a college falls on to other employers and ultimately the tax payer. LGA would propose that the appointed education administrator has a stated responsibility to carry out their function in a way that achieves the best interests for the taxpayer. That would include doing everything possible to avoid the pensions liability falling onto other public sector employers.

The Sub-national Transport Body (transport for the North) Regulations 2018

The regulations were made on 22 January 2018 and came into force on 1 April 2018.

What is the impact?

Please click here for a link to the regulations.

Regulations establish Transport for the North as a new designating scheme employer. 

Her Majesty's Revenue and Customs (HMRC) Countdown bulletin 32

Published on 23 February 2018 includes articles on; Termination and transfer notices, Contributions Equivalent Premium (CEP) and Limited Revaluation Premium (LRP) refunds, Matched members not showing on SRS refreshed output, Secondary type 5 queries and Data limit for query templates for an automated solution.

What is the impact?

Please click here for countdown bulletin 32:  

With introduction of the new state pension from 6 April 2016, pension scheme administrators no longer need to submit termination and transfer notices where the contracted out period ends or transfers after 5 April 2016.

CEP or LRP refunds due to post 5 April 2016: Transfers – HMRC are introducing a process to allow pension scheme administrators to claim a CEP or LRP refund where a post 5 April 2016 transfer of membership or liability has taken place.

New Pensions Online service – User research 

16 February 2018, the Secretariat forwarded an email to all administering authorities from HMRC regarding the new pension online service.

What is the impact?

HMRC explained from April 2018, they will move pension scheme registration and administration onto a new digital platform. The move to the digital platform- the ‘Pensions Online Digital Service’ is to improve service for Pension scheme administrators. 

The researcher Cay Green is looking to speak to pension scheme administrators and practitioners to help with their research. 

Please email cay.green@hmrc.gsi.gov.uk if anyone is interested. 

HMRC Pension Schemes Newsletter 95 

What is the impact?

Administering authorities need to confirm that their details are correct and up to date on the existing pension’s online service. HMRC have started to look at pension scheme accounting and have identified some outstanding AFT charges on the existing service. Consequently, they will soon be writing to scheme administrators setting out any outstanding AFT charges.

Reporting of non-taxable benefits - HMRC are working to resolve the problem of P6 tax coding notices being issued in error for death benefit payments that are entirely non-taxable. Continue to follow the guidance given in pension schemes newsletter 78 and future newsletters will provide updates.

Postal address for Pension Schemes Services has changed. To avoid any delays, write to, or submit any forms to:

Pension Schemes Services
HM Revenue and Customs 
BX9 1GH

Pensions Dashboard Update    

On 13 February 2018, the LGPC Secretariat attended an informal discussion with The Department for Work and Pensions (DWP) and other public service pension schemes about the Pensions Dashboard.

What is the impact?

DWP conducting project to explore the options for delivering the pensions dashboard. They are seeking input and views from stakeholders. 

User research show a consensus around there being a preference for a single dashboard with single point access along with a preference for the dashboard to be government led. 

Results were published at the end of March 2018.

GMP adjustment addendums 

Indexation of GMP elements for members of public service pension schemes who will reach State Pension age (SPa) on and after 6 December 2018.

What is the impact?

Her Majesty's Treasury (HMT) confirmed the  “interim solution” implemented by the government between 6 April 2016 and 5 December 2018 will be extended to cover members of public service schemes with a GMP who reach SPa on or after 6 December 2018 and before 6 April 2021. 

Tell Us About a Death service 

The Department of Work and Pensions (DWP) are doing some work to explore how they can develop the new service ‘Tell Us About a Death’ (TUAAD).

What is the impact?

The new service will enable citizens to report a death more quickly and easily than the existing method ‘Tell Us Once’ (TUO). 

DWP are envisioning the new service TUAAD will be able to log a death on the day itself. This will allow services/payments to be suspended earlier with an informal death notification. It will ask for minimum information about the deceased to match to data already held, so the user will need to enter a lot less data and allowing only the necessary departments to receive a notification. It will provide feedback to the user, this will reduce the need to contact departments and duplicate death notifications. 

DWP are currently exploring ways to achieve this, by contacting stakeholders and current TUO users, to identify and quantify the benefits of our proposed service 

The Finance Act 2004 (Standard Lifetime Allowance) Regulations 2018 

LTA increase to £1,030,000.00.

What is the impact?

The regulations were made and came into force on 20 February 2018. The regulations increase the standard lifetime allowance from £1,000,000 to £1,030,000 for 2018/19.

The Pensions Regulator (TPR) – Managing service providers  

22 February 2018 – TPR published a statement covering the management of service providers.

What is the impact?

The statement was published due to recent attention on companies providing outsourced services to government and industry, including pension schemes. 

The report summarises the Pension Regulator’s expectation of good practice by trustees and scheme managers on the management of service providers, and planning for events, which could have major consequences for pension schemes, including failure of service providers.

Training  

In Bulletin 166, it was mentioned that The Local Government Authority (LGA) would be issuing two short training surveys for administering authorities and employers.

What is the impact?

The two surveys are being finalised and will be sent out shortly. LGA would grateful for responses to help inform the programme going forward. 

Any training requests for the year are to be sent to training.lgps@local.gov.uk.

Additional Voluntary Contributions (AVC) Guide   

Risk warnings for AVC guide to be published.

What is the impact?

Risk warning forms for AVC guide have been published and are available under guides. This will include AVC auto aggregation. These relate to where AVC funds are taken under freedom of choice.

GMP Increase queries    

LGA are to issue guidance on GMP increases in payment.

What is the impact?

An updated ministerial direction is awaited; currently there are 2 queries with the Treasury. Once resolved there will be comprehensive guidance on how GMP’s should be increased with examples. 

Amendment regulations    

These relate to issues identified in the 2013 regulations.

What is the impact?

The regulations are imminent; they are currently waiting ministerial review. However the exit payment aspect has been omitted. MHCLG have not confirmed exactly what will be included but it is expected that they will be almost the same as the draft copy that was on the LGA website. 

Non-club and Interfund transfers     

As advised in bulletin 166 HM Treasury has extended the period for which public service GMP will increase in line with pension increase orders for those who reached SPa between 6th December 2018 and 5th April 2021. Equalisation is expected to follow.

What is the impact?

At the technical group it was mentioned that as a result the factors for members who attain SPa after 5 December 2018 need to be revised by the Government Actuary Department (GAD) in respect of GMP. Funds should continue to use the existing factors in the interim.  

Treasury are setting up a group in 2019 to consider equalisation. Revised factors were issued by MHCLG on 13 March 2018.

Re-use of Public sector information request      

A request from an American company had been received by Powys Pension Fund seeking the right to re-use all documents and information that is publically available through their website.

What is the impact?

At the technical group it was confirmed that these requests tend to be relating to investment. It was suggested that funds can say yes, but only information that is on its current website. 

In Scotland they treat as freedom of information request and pass to their legal team. It was advised that SI 2015/1415 gives information, but this is more to do with the council rather than the scheme.

For further information or to contact us:      

Contact John Kakatsos, Equiniti Relationship Manager
T +44 (0) 7436 561 610| E
john.kakatsos@equiniti.com | W equiniti.com

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