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Pensions update: Updated PPF 7800 index; DWP updates technical guidance on pension credit and more

Technical article

Publication date:

28 July 2020

Last updated:

28 July 2020

Author(s):

Technical Connection

Pensions update from 9 July 2020 to 22 July 2020

 

Public service pension schemes consultation on the options available to those deemed to have been discriminated against
(AF3, FA2, JO5, RO4, RO8)

HM Treasury have issued a consultation with regards to proposed the changes to the transitional arrangements to the 2015 public service pension schemes.

Background

The pension changes for Public Service Pension Schemes, came into force in 2015 with the majority of schemes moving from Final Salary to Career Averaged. As part of the reform those members within 10 years of Normal Pension Age stayed in their existing schemes (known as “transitional protection”) and members between 10 and 13.5 or 14 years of Normal Pension Age could stay in their existing schemes for a period ranging from a few months to several years after 2015.

Several judges and firefighters made claims in the Employment Tribunals on the grounds that the transitional protection offered to older members constituted unjustified direct age discrimination and indirect race and sex discrimination. In particular, they argued that younger members were treated less favourably than older members who were given transitional protection. The Court of Appeal ruled in December 2018 that transitional protection in the judges’ and firefighters’ pension schemes gave rise to unlawful discrimination.

Following the Court of Appeal judgment in December 2018, the government has been working to fix the discrimination identified in the policy of transitional protection mentioned above.

In order to rectify this the option of extending the transition period to put everyone back in their original scheme would be at the detriment to some members. The Government also believe that the 2015 schemes remain appropriate and affordable going forward.

The proposals will apply to all members who were in service on or before 31 March 2012 and on or after 1 April 2015, including those with a qualifying break in service of less than five years, across all affected public service schemes, see below. This is irrespective of whether they have submitted a legal claim or not, or whether they are currently an active, deferred or pensioner member.

Transitional/Remedy Period proposals

To deal with the transitional issues the consultation gives two proposed options:

  1. Immediate choice

Under this option members would make an irrevocable decision as to whether to accrue benefits in their legacy or reformed pension scheme for the remedy period. For most members this choice would be made in the period after the end of the remedy period. It may be made earlier for some of those who take a pension award before 2022.

  1. Deferred choice underpin (DCU)

The member initially will be reinstated into the legacy scheme but given the option at retirement to choose to access benefits using the reformed scheme rules, so deferring the choice until retirement. It called an underpin because the benefits will be paid by the legacy scheme but in the form for the reformed scheme.

Future membership proposal

The second part of the consultation considers the options going forward, with the proposal that all members move to the reformed scheme, usually referred to as the 2015 schemes. This would involve closing all legacy schemes, removing any transitional protection and moving all members to the reformed scheme. Those with accrual under the legacy scheme will retain an earnings link with the legacy scheme to benefit from any future pay increases before retirement.

Impacted schemes

Schemes covering NHS in England and Wales, NHS Scotland, Teachers in England and Wales, Teachers in Scotland, Fire in England, Fire in Wales, Fire in Scotland, Police in England and Wales, Police in Scotland, Civil Service in Great Britain, UK Armed Forces, and the Civil Service (Others) scheme.

A separate but similar consultation has also been issued covering Local Government Pension Schemes.

Changes to the judicial pension schemes will be consulted on separately.

 

PPF publishes updated PPF 7800 index - July 2020

(AF3, FA2, JO5, RO4, RO8)

Since July 2007 the Pension Protection Fund has published the latest estimated funding position, on a s179 basis, for the defined benefit schemes in its eligible universe. 

July 2020 Update Highlights:

  • The aggregate deficit of the 5,422 schemes in the PPF 7800 Index is estimated to have decreased to £174.8 billion at the end of June 2020, from £176.3 billion at the end of May 2020.
  • The funding ratio increased from 90.9 per cent at the end of May 2020 to 91.0 per cent.
  • Total assets were £1,775.5 billion and total liabilities were £1,950.3 billion.
  • There were 3,617 schemes in deficit and 1,805 schemes in surplus.
  • The deficit of the schemes in deficit at the end of June 2020 was £288.0 billion, down from £290.1 billion at the end of May 2020. 

The PPF 7800 index is published on the second Tuesday of every month, and the PPF publishes The Purple Book each year. 

Research finds more people make Pension Wise appointments when encouraged by provider

(AF3, FA2, JO5, RO4, RO8)

The Money and Pensions Service (MaPS) has published the results of behavioural trials conducted by the Behavioural Insights Team. According to the research, more effective ways of encouraging people who telephone their pension provider to take Pension Wise guidance could increase the engagement of appointments by around three times, compared with the current signposting methods to this group. The trial found that around 11% of customers who were offered a Pension Wise appointment or were transferred to a member of the Pension Wise booking team went on to attend an appointment within the following six weeks, compared with less than 3% of customers in the control group. The research also found that people were more likely to take up the guidance offered whilst still exploring their choices, rather than whilst they were requesting a specific option for accessing their money. 

Pension Schemes Bill receives third reading

(AF3, FA2, JO5, RO4, RO8)

The DWP has announced in a Press Release that what they refer to as the “Landmark” Pension Schemes Bill received its third reading in the House of Lords and will be taken through to the House of Commons later this year. The Bill aims to improve protections for savers and furthers the Government’s progress towards net zero greenhouse gas emissions. Minister for Pensions and Financial Inclusion Guy Opperman commented: “With this Bill, we’re pushing ahead with our innovative and ambitious pensions agenda, one that delivers for the record numbers of people saving for retirement... The measures introduced through this Bill will help towards protecting the planet and contribute to long-term member outcomes. The Pension Schemes Bill is a milestone in bringing pensions into the digital age. I am looking forward to guiding it through the House of Commons.”

DWP updates technical guidance on pension credit

(AF3, FA2, JO5, RO4, RO8)

The DWP has updated its technical guidance on pension credit, PC10S — A detailed guide to Pension Credit for advisers and others, to the April 2020 version. The document provides detailed guidance about what pension credit is, how it is worked out, the eligibility rules and the application process

This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.

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