With more than 16% of the UK workforce working in the public sector, many of you will have public servants as clients. Given the pace of change and as we approach the half year, here’s a round-up of the key developments in this sector.
On 31 October 2018, the government announced they were reducing the SCAPE discount rate from CPI + 2.8% to CPI + 2.4%. This rate is used to determine the actuarial factors used across all public service pension schemes. This change means that new factors need to be issued for transfers, pension credits, buying additional scheme benefits etc. You may find certain transactions have been temporarily suspended or transitional measures have been introduced. If you’ve downloaded copies of additional pension or scheme pays factors, you should make sure you’re using the most up to date version for your client.
The change to the SCAPE discount rate, together with changes from cyclical scheme revaluations every four years, means that public sector employers must pay significantly higher pension contributions. These increased employer contributions were effective from 1 April 2019.
In the teachers’ scheme (TPS), it’s recognised that schools budgets run in line with academic years so the increase from 16.4% to 23.6% of teachers’ salaries is effective from 1st September 2019. Following consultation, the government will provide funding to maintained schools and further education institutions for 2019/20, but not to universities and independent schools. The size of the increase is putting pressure on independent schools’ budgets, to the extent that many may need to take extreme measures to find the extra money. For those unable to carry the additional cost burden, possible steps include:
Under current TPS rules, employers aren’t permitted to put new joiners into a new scheme while leaving existing teachers in the TPS. The government has said they’ll consult urgently on changing this. In the meantime, schools wishing to consider alternative pension provision will need to take all teachers out of TPS into another scheme. This could be an existing arrangement already in place for non-teaching staff or an alternative scheme.
For its member schools, The Independent Schools’ Bursars Association (ISBA) has put forward an alternative scheme via its preferred providers, which is a Master Trust arrangement. Other product and service providers are also now marketing their services in this space. If you have independent schools as clients, you might want to discuss their approach to this issue.
In December 2018, the Court of Appeal found that transitional protections for older members of the Firefighters’ and Judicial pension schemes as part of sector reform were unlawful on the grounds of age discrimination. Under these transitional protections, scheme members who were within 10 years of their normal retirement age (NRA) at 1 April 2012 and met certain other conditions, could stay in their final salary scheme rather than moving to the new career average scheme. Many schemes also offered ‘tapered’ protection to those who were within 13 or 14 years of their NRA on that date. The impact of this judgement is potentially very significant and the government is seeking to appeal. If it loses, the government will need to compensate individuals who were moved to career average arrangements and lost out as a result. From an advice perspective, if the government is unsuccessful in court, you may need to consider the impact of any remedy on your clients’ retirement planning and any benefit estimates you’ve provided.
In a statement issued on 30 January 2019, the government announced that due to the uncertainty over the future costs of public service pension provision created by this judgement, it had no choice but to suspend operation of the employer cost cap. This is a mechanism which ensures the costs of post-reform public service pensions don’t go outside certain tolerances.
In 2017, the Supreme Court ruled that provisions in the Equality Act 2010, which made it lawful to discriminate against an employee in a civil partnership or same sex marriage by preventing or restricting access to a benefit accrued before 5 December 2005 or which was payable in respect of periods of service before that date, were incompatible with the EU Framework Direction on discrimination. As a result of this case, public service pension schemes must provide the same survivor benefits for civil partners and same sex spouses as for opposite sex spouses. Consultations have been underway over the last few months and schemes are beginning to make changes.
There are some points to note from this:
In April this year, the High Court ruled that overtime payments made to firefighters were pensionable. As with some other public sector pension schemes, overtime payments under the firefighters’ scheme aren’t pensionable, but salary and other ‘regular’ payments are. Because firefighters are regularly paid an allowance for additional shift work, the payments were deemed as (retrospectively) pensionable by the court. Clarity on what constitutes ‘regular’ payments is needed, but it would be unwise at this stage to assume this will also apply to other schemes.
While we’re on the subject of overtime payments, there’s recently been a lot written in the press about the impacts of the tapered annual allowance on doctors. These include examples of the eye watering marginal tax rates sometimes payable on non-pensionable additional shift work. Differentiated tax treatment for doctors has been ruled out, but the Chancellor has now indicated that he‘s prepared to consider making pension arrangements ‘more flexible’. We’ve considered a number of potential solutions and In the meantime, we urge you wherever possible to do the legwork to demonstrate to your clients whether there will be a net benefit to remaining in the scheme. Our policy paper gives examples of appropriate calculations.
Senior Business Development Manager
Moira spent the early part of her career with a number of European investment banks both here in the UK and overseas with responsibility for sales of money market securities and fixed income products to institutional and Central Bank clients. In the early noughties she moved to the life insurance sector where she has held various pensions technical roles supporting both provider product and proposition/ sales. Moira specialises in Public Sector pensions and worked closely with a number of key Public service pension schemes and the Local Government Association to help ensure the compliant overlay of pension freedoms on scheme regulations and practices.