All change for Public Sector Pension schemes
22 March 2022
22 March 2022
Chris Jones, Technical Connection
1 April 2022 marks the end of an era for most public sector pension schemes. The accrual of final salary benefits will cease for all members and from then on it will only be available in the career average (CARE) sections of the schemes.
The change is a key part of the McCloud rectification. This will remove the effect of the age discrimination which was caused by offering transitional protection to older members of the schemes when the career average schemes were introduced in 2015. To rectify this, the same transitional protections are being offered to all members who were in service on or before 31 March 2012 and on or after 1 April 2015, whether they are currently an active, deferred or pensioner member.
The rectification will involve eligible members of Public Sector pensions schemes being moved back from their career average schemes to their old final salary schemes for the seven year period – the remedy period, between 1 April 2015 and 31 March 2022. When members come to take their benefits, they will then be given the choice as to whether to take them from the older final salary scheme or CARE scheme for the remedy period
From 1 April 2022, when the remedy period ends, all those in service in the main unfunded schemes (i.e. teachers, civil service, firefighters, police, armed forces and NHS) will be members of the 2015 CARE pension schemes, ensuring equal treatment from that point on. However, although no further accrual is possible, the final salary link remains for those benefits already accrued.
Given the scale of the rectification it is likely to take some time for the schemes to fully process them and probably well into next year before members will receive accurate statements of their revised benefit options. The pension inputs for the years during the remedy period will also need to be recalculated but these aren’t expected to be available until October 2023. This will then require revised annual allowance calculations along with any annual allowance tax charge reclaims or payments. The scheme pays rules have been changed to extend the time period it can be used and so will cover any new charges that occur as a result of the rectification. Those taking benefits in the meantime will need to take then based on the current position and then have them revised later if they prove to be better. This will also involve revised lifetime allowance calculations and amendments to any lifetime allowance charges. The same will apply for the eligible members who have already taken their benefits.
The CARE sections are all technically separate registered schemes. This means that joining them from 1 April 2022 could revoke any enhanced or fixed protection members may hold. HMRC has issued guidance in the Pensions schemes Newsletter 137 and a warning to schemes to make their members aware of the issue. However, you would have expected most members with these forms of protection to have opted out of the schemes to avoid losing them with benefit accrual.
Older members will be moving to the CARE for the first time and some may question the benefits of joining the scheme. It should be remembered that the CARE schemes are still extremely good pension schemes and offer a better annual accrual rate than the older final salary schemes. It is very rare that opting out of the schemes will be of greater benefit than continuing to accrue in the new sections of the schemes.
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.