Public Sector Briefing

The Public Sector Briefing takes a look at current issues of interest in public sector pensions.

In this Briefing:

• Public Service Pensions Act

• Governance

• Member Representation

• Knowledge & Understanding

• LGPS 2014

Public Service Pensions Act

• The Act received Royal Assent on 25 April 2013.
• The Act creates the unified legal framework underpinning the new public sector CARE arrangements, which come into force on 1 April 2014 for the LGPS and 1 April 2015 for all other public sector schemes.
• The Act also provides for making regulations to implement many of theHutton Report’s other recommendations, for example, cost controls, regulatory oversight and strengthening scheme governance.
• TPR’s current role for the private sector will be expanded to cover public sector schemes. TPR will publish a number of codes of practice with which public sector schemes will need to comply.

Governance

• We are expecting draft regulations on the new governance arrangements soon. Governance covers a range of measures dealing with effective administration and management, including committee constitution and structure, conflicts of interest and risk management.
• Two new roles will be created in the public sector: the Pension Board and Scheme Manager.
• Scheme Managers will be responsible for the administration and management of the scheme. The Pension Board is responsible for assisting the Scheme Manager in “effectively and efficiently” performing its role in compliance with relevant regulations and TPR.

Member Representation

• For the first time, there will be a requirement for member representation on Pension Boards. In future, there will be equal Representation numbers of employer and member representatives.
• In the private sector, a third of the trustees on a trustee board are required to be member nominated trustees.

Knowledge & Understanding

• All members of the Pensions Board will be required to have an Knowledge and appropriate level of knowledge and understanding to enable them Understanding to properly exercise their functions on the board.
• New private sector occupational pension scheme trustees are given six months from the date of their appointment to get up to speed with the knowledge and understanding requirements.
• We would expect that any code of practice on knowledge and understanding published by TPR for the public sector would reflect the private sector requirements.
• Our experience of this requirement in the private sector has been very positive for pensions.

How do private sector pension schemes manage these requirements?

• Schemes may wish to consider offering new trustees pre-appointment training.
• Trustees can use TPR’s e-learning programme, “the Trustee Toolkit” to build a base level of knowledge and understanding of pensions.
• Schemes can identify gaps in knowledge and bridge with additional training – either generic training or bespoke.
• Schemes should keep notes of roles of sub-committees and consider those skill sets before making further appointments.
• Trustee training should be recorded and ensure it is ongoing and appropriate.
• Training and skills should be reviewed at least on an annual basis.
• Although there has, as yet, been no move towards formal qualifications in the private sector, TPR requires trustees to undertake its e-learning programme, “the Trustee Toolkit” (unless they can find a suitable alternative training programme).

LGPS 2014

• From April 2014, LGPS will move from final salary to CARE, with an accrual rate of 1/49ths (increasing from 1/60ths) with CPI revaluation. In addition, each member’s NPA will be tracked to their SPA.
• Contributions will be banded, with average member contributions remaining at 6.5%, but the rate will be by reference to actual pay (rather than part-time contribution rates being determined on full time equivalent pay). The intention is that lower-paid members will pay the same or less than they now do.
• There will be a new 50/50 option -rather than opting out of the scheme, a member may pay half contributions for half the pension (but the full value of other benefits).
• Benefits for service prior to 1 April will be protected based on final salary and current NPA, and a statutory underpin will protect members within ten years of their NPA on 1 April 2014.

Transition Proposals

• There are outstanding consultations on the transitional arrangements and a number of administrative issues.
• From 1 April 2014 it is proposed that members will not be able to accrue any benefits in the current benefit structure, but that active members of the 2008 regime will automatically become members of the new 2014 CARE scheme.
• If a member wishes to transfer benefits out of the LGPS, it is intended that they will need to transfer all their benefits accrued in the 1997, 2008 and 2014 regimes.
• Likewise, when benefits are drawn under the new 2014 CARE scheme, any benefits accrued in the 1997 and 2008 regimes will need to be taken at the same time.

Outstanding Issues

• The main consultation also set out a number of issues on which the Government has not been able to reach agreement with its advisory panel (the Local Government Association and the trades unions).
• These outstanding issues include:

• whether a member can aggregate their accounts across the different LGPS regimes;
• the definition and use of “assumed pensionable pay” (particularly for considering reduced pay or unpaid absences); and
• the detail of how pensions are to be revalued.

Infrastructure Investments

• The Regulations governing LGPS investments have now been relaxed to allow more investments in limited partnerships, a popular means of accessing infrastructure investments.
• The change took effect on 1 April 2013 and allows Administering Authorities to increase the headroom limit for these sorts of investments to up to 30% of the pension fund’s value (up from 15%).
• In its response to the consultation, DCLG has noted that a comprehensive overhaul of the investment regulations removing the current structure of headroom limits would be welcomed. DCLG has undertaken to look at this issue again once changes made by the Act are in force.

Admissions Agreement

The Government has confirmed that the Fair Deal will be retained for all public sector schemes, including the LGPS (although the final details of the proposals have not yet been published).

But it has confirmed that admission agreements entered into before 1 April 2014 will be valid in the 2014 CARE scheme.

In addition, changes are being consulted on to ensure that, following the introduction of auto-enrolment, eligible members who had not opted to join before 1 October 2012 are not auto-enrolled. See our Alert on this topic for more detail.

There are also technical changes planned to the LGPS equivalent of the employer debt arrangements when an employer ceases to participate in the LGPS.