UK Public Service Pensions Update | October 2024 – Osborne Clarke

This month we consider developments in the areas of the McCloud remedy, pensions tax, investing for net zero, data protection, judicial pensions, assimilated (retained) EU law, and collective money purchase schemes. We also look at a new expedited decision-making process at the Pensions Ombudsman and two recent decisions in which the ombudsman made significant awards for distress and inconvenience caused by a failure to show urgency, empathy or compassion.

If you would like to discuss any of the items in this newsletter, please contact one of the experts listed at the end of the update.

McCloud remedy | New and updated HMRC guidance

In the last edition we reported that HMRC had published a newsletter in which it confirmed that its “calculate your public service pension adjustment service” is available to use again. The newsletter set out the changes that have been made to the service, confirmed what information schemes might need to provide to members and to HMRC, and listed a number of actions for scheme administrators.

The newsletter has since been updated to include guidance on the offsetting process for the unauthorised payments charge.

Two updates have also been made to the revised guide for members on how to use the “calculate your public service pension adjustment service”.

Autumn Budget | What tax measures can the UK expect?

As 30 October approaches, we have set out our thoughts in an Insight.

Removal of the lifetime allowance | Two new sets of regulations

In previous newsletters we have provided updates on the expected timing of regulations needed to address problems identified with the legislation that removed the lifetime allowance.

The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 2) Regulations 2024 have been made, will come into force on 18 November 2024 and have effect for the tax year 2024-25 and subsequent tax years (that is, from 6 April 2024 onwards).

The draft Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024 have been laid before Parliament. They have also been written on the basis that they will come into force on 18 November 2024 and have effect for the tax year 2024-25 and subsequent tax years (that is, from 6 April 2024 onwards).

The explanatory memorandums (here and here) describe the changes made.

Investment | Investing for net zero

IFM investors has published a policy blueprint for the UK on mobilising pension capital for net zero.

The report makes a series of recommendations to the UK government on action it can take to “help unlock further investment in the UK’s net zero transition, drive economic growth and deliver appropriate risk-adjusted returns on workers’ retirement savings”.

The project partners include Border to Coast Pensions Partnership, Local Government Pension Scheme (LGPS) Central, and North East Scotland Pension Fund

Data protection | Permission to appeal granted in case relating to annual benefit statements posted to the wrong address

Permission to appeal has been granted in the case of Farley and others v Paymaster.

In 2019, the respondent sent the annual benefit statements (ABS) of a number of pension scheme members by post to the wrong address. The members brought claims for misuse of private information and/or infringement of data protection rights under the UK GDPR and Data Protection Act 2018.

The respondent applied to strike out all the claims or for summary judgment. The judge concluded that only 14 of the claims could proceed, these being ones in which the claimant had a real prospect of demonstrating that the ABS had been opened and read by a third party. The claims of the other claimants – including the applicants – were dismissed.

The Court of Appeal has granted the applicants permission to appeal the judge’s decision in relation to infringement of their data protection rights. (The judge’s decision in relation to misuse of private information is not challenged.)

Pensions Ombudsman | New expedited decision-making process

The Pensions Ombudsman has shared details of new, expedited, decision-making process for certain types of complaint. In cases that the Pensions Ombudsman’s office assesses as having a clear outcome (for example, where a pension provider supplied an incorrect benefit statement, but it is clear no loss was caused by the error, or where a member wants a scheme to honour a cash equivalent transfer value when the member was responsible for not meeting the statutory time limits) an initial decision will be issued to all parties setting out a caseworker’s view. If any party does not agree, they can ask for the matter to be referred to an ombudsman, who will issue a final and binding determination if they agree with the caseworker’s view. In this way, parties will be able to get a determination without going through the adjudication process.

This change is one of several being made following the ombudsman’s review of its operating procedures. It is intended to reduce “duplication in our process … provide shorter Determinations similar to summary judgments used by the courts ….[and] reduce the amount of time these customers currently wait in our queues by as much as 18 months.”

Consultation response | Judicial pensions

The Ministry of Justice has published the response to its consultation on draft regulations to amend three sets of regulations and an order relating to judicial pensions.

Assimilated (retained) EU law | Introduction of expanded EU case law departure powers paused

Section 6 of the Retained EU Law (Revocation and Reform) Act 2023 sets out broad powers that, when they are in force, will give the UK courts greater power to depart from assimilated case law. This is what was formerly known as retained EU case law and retained domestic case law (domestic case law that has been influenced by assimilated/retained EU case law). The powers would allow, or perhaps even encourage, the UK Supreme Court and Court of Appeal to depart from established principles of UK case law influenced by assimilated EU law.

Section 6 can only be brought into force by commencement regulations. The previous government had introduced these regulations and the provisions were set to come into force on 1 October 2024. Since then, the UK has had a change of government and the new government has decided to revoke these commencement regulations. This means that the powers will not come into force in October 2024 and there is no clarity on when or if they will be introduced. You can read more in our Insight.

Private sector pensions | Royal Mail launches the first collective money purchase scheme

On 7 October 2024, Royal Mail launched the UK’s first collective money purchase (CMP) pension scheme. On 8 October, the government launched a consultation on draft legislation to extend CMP provision to whole-life unconnected multiple employer schemes and other related provisions.

CMP schemes are a new type of pension scheme. In the Royal Mail plan, Royal Mail and active members will pay contributions to a trustee, who will invest them to provide a cash lump sum and pension income. The pension income can go up or down and will be adjusted each year to take account of investment performance and how much the plan expects to pay out to members. The lump sum is guaranteed (and so will not go down), but can be increased if funding levels permit.

The consultation is important because it will expand the scope of CMP schemes. At the moment, the legislation only allows single and connected employers to establish this type of scheme. In practice, this means that only larger employers can offer this type of scheme to their employees. The draft regulations would change the law to allow ‘whole-life unconnected multiple employer schemes’. This would allow the creation of (for example) CMP master trusts, which could provide a way for any employer to offer a CMP scheme to their employees. The consultation will close on 19 November 2024, and regulations might follow in 2025.

Pensions Ombudsman | Failure to show urgency or empathy

The Pensions Ombudsman has published two decisions in which it has made significant awards for distress and inconvenience caused by a failure to show urgency, empathy or compassion in responding to a member or beneficiary.

In CAS-93659-D0T2, the Pensions Ombudsman partly upheld a complaint by a member of the LGPS in relation to delay in the setting up of his early retirement benefits.

The Pensions Ombudsman concluded that, collectively, the Local Pensions Partnership Administration (LPPA) had only acted outside of its service levels for a total period of five working days between 30 March 2022 and 7 June 2022 and that the member did not suffer any financial loss as a result of this delay. However, the ombudsman directed the LPPA to provide the member with certain information he had requested and to pay the member £2,000 in recognition of severe distress and inconvenience. The member was suffering from incurable cancer. It was one year and seven months before he received a full response to his “relatively straightforward” complaint and LPPA was “slow to provide any information, or even respond to the Adjudicator“. The ombudsman felt that this spoke “of a complete lack of empathy and compassion in dealing with the situation [which] undoubtably will have caused … severe distress and inconvenience“.

In CAS-97837-M9N2, the Pensions Ombudsman upheld a complaint by the widow of a member of the Teachers’ Pension Scheme in relation to delay in processing her death benefits claim.

In this case, the delay was between March 2022 and October 2022. There was no financial loss because the benefits and arrears had been paid, with interest. However, there had been a failure to confirm that there would be a delay in paying the benefits, a failure to update the spouse in spite of chasers and complaints and “no evidence of any urgency or empathy … in dealing with Mrs S’s claim following her bereavement, which, it was quite likely, would have made her financial circumstances more difficult.” The Pensions Ombudsman awarded £1,000 compensation for serious distress and inconvenience, finding that the financial hardship caused by the delay had aggravated Mrs S’s difficult situation.

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.