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Firefighters Pension Scheme
Annual Conference – Day Two
10th October 2017www.local.gov.uk
Illustrated by Eunice Heaney
Agenda• Chair’s Welcome
• A view from Government, Peter Spreadbury Home Office and
Chris Mulholland, Government Actuary’s Department
• Nothing is certain but death and taxes
• Recent Case Law
• LGA and Scheme Advisory Board Update
• TPR – Data and GDPR
• End of Contracting Out
• Closing remarks
www.local.gov.uk
‘
Chair’s welcome
Malcolm Eastwood
Chair of the Firefighters Scheme Advisory
Board (England)
Malcolm Eastwood
Chair of the Firefighters Scheme
Advisory Board (England)
‘
RISK
Regulatory and
Compliance
Financial Operational
Non compliance with TPR Excessive Charges Member Data
Failure to interpret
regulations
Pension Fund accounting
mistakes
Administrative failures
Failure to comply with
disclosure requirements
Authority costs due to
failure to apply scheme /
tax rule correctly
Premises
Failure to communicate
with scheme members
Failure to deduct correct
employee contributions
Software
Fraud Workforce planning
DM 6031012 v2I These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction.
Case study - s89 Teachers’ Pension Scheme
• 2 breach of law reports in 2016 from administrator
• 43 employers failing to submit their End of Year Certificates (EOYCs) to the
scheme manager by the legal deadline
• Administrator had made multiple contacts with each employer
• Our engagement:
– we engaged with non-compliant employers
– engagement identified a lack of knowledge and understanding by
employers on EOYC submissions
– all but one employer now compliant
– the scheme manager removed the final employer from the scheme (the
employer has now gone insolvent)
• For more detail:
www.tpr.gov.uk/docs/regulatory-intervention-section-89-teachers.pdf
Tax Seminars
Venue Date
London 25th October
Leeds 15th November
Amersham 29th November
Liverpool 5th December
Bromsgrove 6th Dec
Cheltenham 8th January
London 10th January
Peter Spreadbury
10 October 2017
LGA Firefighters’ Pensions Conference
Firefighters’ Pension Scheme
Valuation Update
At GAD, we seek to achieve a high standard in all our work. We are accredited under the Institute
and Faculty of Actuaries’ Quality Assurance Scheme. Our website describes the standards we apply. Slide: 10
Chris Mulholland
Actuary
Government Actuary’s Department
10 October 2017
Firefighters’ Pension Scheme Valuation
Government Actuary’s Department
www.gov.uk/gad Slide: 11
Valuation as at 31 March 2016 - Background
> Required by legislation
> Calculate employer contribution rate
> from 2019 to 2023
> Determine whether the cost cap has been breached
> Similar valuations also being carried out at the same time for
other public service pension schemes
> eg police, NHS, teachers, etc
Firefighters’ Pension Scheme Valuation
Government Actuary’s Department
www.gov.uk/gad Slide: 12
Current employer contribution rates (England)
Payable 2015 to 2019 (from 2012 valuation)
Rate as % of pensionable pay 1992
Scheme
2006
Scheme
2015
Scheme
Cost of accrual 43.6% 30.7% 27.3%
Past service effects -5.5% -5.5% 0.0%
Less member contributions -14.8% -10.7% -12.5%
Less allowance for ill health charges -1.6% -2.6% -0.5%
2015-19 employer contribution
rate21.7% 11.9% 14.3%
Firefighters’ Pension Scheme Valuation
Government Actuary’s Department
www.gov.uk/gad Slide: 13
Valuation as at 31 March 2016 - Data
> Data collated directly from all FRAs
> Membership data as at 31 March 2016
> To calculate accrued pensions as at 31 March 2016
> To calculate pension expected to be accrued over the next few
years
> Movement data to 31 March 2016
> Used to derive assumptions for future membership behaviour
> Includes analysis of retirement patterns, life expectancies, etc
Firefighters’ Pension Scheme Valuation
Scheme Statistics (England)
Government Actuary’s Department
www.gov.uk/gad Slide: 14
Group/statistic 31 Mar 2012 31 Mar 2015 31 Mar 2016
Active firefighters 35,149 33,601 32,985
Deferred pensioners 5,242 8,641 10,675
Pensioners 38,598 40,751 42,376
Total membership
(number of records)78,989 82,993 86,036
Total salaries (£m pa)1,109 (FTE)
954 (Actual)
1,089 (FTE)
886 (Actual)
1,060 (FTE)
878 (Actual)
Total pensions in
payment (£m pa)539 616 637
1. Figures shown at 2015 and 2016 are provisional pending further checking at GAD.
2. Full time equivalent figure at 2016 includes actual salary for new entrants to the 2015 Scheme.
3. Pensioner numbers exclude children’s pensions at 2015 and 2016.
Firefighters’ Pension Scheme Valuation
Change in active membership since 2012
Government Actuary’s Department
www.gov.uk/gad Slide: 15
Firefighters’ Pension Scheme Valuation
Government Actuary’s Department
www.gov.uk/gad Slide: 16
Normal health retirement – by service
Firefighters’ Pension Scheme Valuation
Evolving active membership – Projections from 2012 valuation
Government Actuary’s Department
www.gov.uk/gad Slide: 17
Firefighters’ Pension Scheme Valuation
Government Actuary’s Department
www.gov.uk/gad Slide: 18
2016 Valuation - Employer contribution rate
> The output of the 2016 valuation will be an updated employer
contribution rate
> Expected to apply from April 2019 to March 2023
> Will allow for:
> Change to the interest rate (the SCAPE rate)
> Changes to salary growth, and other financial assumptions, set by
HMT
> Latest mortality projections by ONS
> Impact of recent membership movements
> Changes to fire specific assumptions to adjust for recent experience in
the Fire Scheme, eg retirement patterns, life expectancies
Firefighters’ Pension Scheme Valuation
Government Actuary’s Department
www.gov.uk/gad Slide: 19
Cost cap mechanism
> What is it?
> A cost control mechanism introduced by HMT
> To maintain the cost of the fire scheme at a similar level to when the 2015 Scheme was introduced
> Monitored at each actuarial valuation
> How is it expressed?
> A baseline cost was established at the 2012 valuation being 16.8% of pensionable pay.
> Equates to the employer’s share of the cost of the 2015 Scheme
> Calculated in a different way to the employer contribution rate
> Assumes all active members are in the 2015 scheme
Firefighters’ Pension Scheme Valuation
Assessment of cost cap at 2016 valuation
> The ‘cost cap cost of the scheme’ will be calculated.
> Then compared with the 16.8% of pay to see if still within 2.0%
of pay
> Updated figure allows for:
> Changes to assumptions (but not the change in SCAPE rate and long term
salary growth)
> Scheme experience from April 2015 to March 2016 (mostly for active
members)
Government Actuary’s Department
www.gov.uk/gad Slide: 20
Firefighters’ Pension Scheme Valuation
2016 Valuation – Current status
> GAD producing formal data report
> Home Office consultation with the Scheme Advisory Board on
scheme specific actuarial assumptions to be used for the
valuation
> When will members retire?
> How long will they live for?
> Now moving onto the main valuation calculations
> New employer rates
> Assessment of cost cap mechanism
> Results planned for Spring 2018
Government Actuary’s Department
www.gov.uk/gad Slide: 21
Nothing is certain but death and
taxes
www.local.gov.uk
Important note
• These slides are developed to provide a short
overview of death benefits across the
schemes, and are not intended to replace
regulations.
• The regulations are referred to without and
should always be checked when calculating
any benefit payable.
Hmmm?
“In this world nothing can said to be certain,
except death and taxes”
Benjamin Franklin
The story of Willie Sprinkler!
A simple death case ?????
• Willie Sprinkler dies leaving a wife, and four
baby sprinklers
• Simple case of a dependants pension,
childrens pension and a death grant……….
• OR IS IT?
Why pensions are always more complex than you’d
think!
• What about his other 4 children with his ex-
wife?
• One’s at university, one is working, but under
23, two are under 18.
• And what about his lady friend?
• Actually he’s getting divorced!
• Another baby on the way ……..
• AHHHHHH
Pensions for Survivors
• Spouse
• Civil Partner
• Co-habiting partner
• Wide age disparity clause
• Children's pension
Types of member1992 Scheme 2006 Scheme Special Firefighter
members
2015 Scheme
Protected standard
members
Protected standard
members
Protected special
members
2015 only members
Protected retained
members
1992 transitional
members
2006 standard
transitional members
2006 retained
transitional members
2006 Special
transitional members
Survivor benefits – Court Judgments
• ‘Brewster’ – Nomination of cohabiting
partner -
• Walker – Same Sex marriage / Civil
Partner Survivors pension
Survivor Pension - RegulationsFPS 1992 [Part C] * FPS 2006
Standard and Special
Members [Part 4]
FPS 2015 [Part 6]
Entitlement Surviving Spouse or Civil
Partner [Rule C1]
Spouse, Civil Partner or
Nominated Partner [Part
4, Para 1 (1)]
Spouse, Civil Partner or
Co-habitee [76]
Death In Service Half of higher tier ill health
[C1(1)(a)]
[Part 1 Schedule 3 (1)
(2a)]
Half higher tier
[Part 4, Para 2 (1a)
Half higher tier (payable
under regulation 65(2))
[78(3)]
Death In Retirement Half of pension in
payment disregarding
commutation
[Part 1, Schedule 3 (1)
(2)]
Half of pension payable to
member on death,
accounting for any
commutation but as if
there had been no
actuarial reduction
[Part 4 , Para 2]
Half of pension payable to
member on death
accounting for any
commutation but as if
there had been no
actuarial reduction [80(3)]
*Restrictions: Civil partner pension restricted to post 6th April 1988 service only [C1(2A)]
Important note
• If a person dies in service in the 2015
scheme, even if they have transitional benefits
in the 1992 scheme, the entitlement to a
pension is as per the 2015 scheme rules.
• This means that a cohabiting partner will still
be entitled to half of the equivalent 1992
pension as well as the 2015 portion.
Lump Sum – RegulationsFPS 1992
[Part E]
FPS 2006
Standard and Special Members
[Part 5]
FPS 2015
[Part 6, Chapter 4]
Death in Service
lump sum?
2 x pensionable
salary [E1(3)]
Standard Members - 3 x
pensionable salary [Part 5, Para 1
(2)]
Special Members
2 x pensionable salary
[Part 5, Para 1 (2A)]
3 x pensionable salary
[96(2)]
Death in deferment
lump sum?
No No No
Death on pension
lump sum?
No 5 x pension less that already paid
[Part 5 Para 2 (1)]
5 x pension less that
already paid [97(3)]
Death grant paid to? Spouse/Civil
Partner or to estate
[E1 (4)]
FRA discretion [Part 5, Para 1 (10)] FRA discretion [95]
Other regulations that may applyFPS 1992 [Part C] FPS 2006
Standard and Special Members
[Part 4, Chapter 1]
FPS 2015
[Part 6, Chapter 2]
Wide age disparity Not applicable Reduced by the lower of 50% of
pension or a reduction of 2.5 per
cent for each year by which the
deceased’s age exceeds, by more
than twelve years, that of the
survivor
[[2.5 * (N – 12) %] where N = the
number of whole years the
surviving partner is younger than
the member]
[Part 4, Para 3]
Reduced by the lower of
50% of pension or a
reduction of 2.5 per cent
for each year by which
the deceased’s age
exceeds, by more than
twelve years, that of the
survivor
[[2.5 * (N – 12) %] where
N = the number of whole
years the surviving
partner is younger than
the member]
[82]
Post-retirement
marriage
[C5 (2)] Not applicable Not applicable
Effect of re-marriage [1992 C9]• Up to 31st March 2015 – Pension ceases on
remarriage
• From 1st April 2015 – Pension ceases on
remarriage unless the deceased (d) died as a
result of an injury
i. Received in the excise of d’s duties as a
firefighter [Injury pension in payment] or
ii. Sustained while on a journey necessary to
enable D to report for duty or return home after
duty [Not eligible for injury pension]
Children's Pensions- RegulationsFPS 1992 [Part D] FPS 2006
Standard and Special
Members [Part 4, Chapter
2]
FPS 2015 [Part 6,
Chapter 3]
Childs Pension Up to 2 children
18.75% each of base
pension
3 children or more
37.5% of base
pension ÷ total
children
Rule D1 Part 1 Schedule
4 [1(2)]
1 child - ¼ ill-health
[Part 4, Para 8 (1a)]
>1 child ½ ill-health ÷total children
[Part 4, Para 8 (1b)]
1 child - ¼ ill-health
[89(1)]
>1 child ½ ill-health ÷total children
[89(2)]
Where there is
no entitlement
to survivors
pension
[Orphaned children only]
Pension payable at
Up to 2 children 25%
3 children or more
50% ÷total children
[Schedule 4 [1(3)]
½ ill-health pension or
pension in payment after
commutation ÷total
children
[Part 4, para 10]
½ ill health pension or
pension in payment after
commutation ÷ total
children
[90(2)]
‘total children’ means ‘total number of eligible children
Short Service Pension- Regulations
FPS 1992 [Part E] FPS 2006
Standard and Special
Members [Part 4]
FPS 2015 [Part 6,
Chapter 2]
Survivors
Pension
Active or
Pensioner
Member
13 week short
pension [E8]
13 week short pension
[Part 4, Chapter 1, Para
4]
13 week short pension
[81]
Childs
pension
where there
is no
entitlement to
survivors
pension
13 week short
pension [E8A]
13 week short pension
[Part 4, Chapter 2, Para
9]
13 week short pension
[92]
Childs pension restrictions
Not eligible if:
• 18 or older, and has ceased full time
education and in paid employment, or married
or entered into a civil partnership
• Older than 23 or full time education ceases
• 18 or older and not dependant by reason of
permanent disablement
• Convicted of murder of the deceased
Injury Pensions- RegulationsCompensation Scheme [Part 3]
Survivors -
Special
award
[Para 1]
Where a person dies from the effects of a qualifying
injury or infirmity of mind or body caused by a
qualifying injury
Survivors -
Augmented
award
[Para 2]
Where a person dies from the effects of a qualifying
injury or infirmity of mind or body caused by a
qualifying injury, BUT where the injury was received in
execution of duties performed where -
Intrinsic likelihood of receiving fatal injury for the
immediate purpose of saving life
Effect of new relationship
[Compensation Scheme Part 3, Para
5]
• Up to 31st March 2015 – Pension ceases on
new relationship.
• From 1st April 2015 – Pension does not cease
on new relationship.
• The information contained in these slides are the authors
interpretation of the current regulations.
• Readers should take their own legal advice on the
interpretation of any particular piece of legislation.
• No responsibility whatsoever will be assumed by LGA for
any direct or consequential loss, financial or otherwise,
damage or inconvenience, or any other obligation or
liability incurred by readers relying on information
contained in these slides.
Disclaimer
Refreshments
Case Law update
Fire Pensions Conference 2017
10 October 2017
Alec Bennett
Principal Associate
Eversheds Sutherland | 10 October 2017 |
A bumper few months for pensions cases
Case Law update
44
Agenda
– Walker v Innospec – survivors benefits for same sex / civil partners
– Brewster v NILGOSC – surviving cohabitees’ benefits
– McCloud v Ministry of Justice; Sargeant v LFEPA – age discrimination
– Mrs S - overpayments
Case Law Update
Walker v Innospec
Eversheds Sutherland | 10 October 2017 |
Facts
Survivors’ benefits for civil partnerships and same-sex marriages
Walker v Innospec
─ Mr Walker was employed from 1980 to 2003 when he retired. He had been with his partner since 1993 and they entered into a civil partnership in January 2006 and subsequently married
─ Scheme applied exemption under the Equality Act 2010 limiting benefits payable to Civil Partners to post 5-December 2005 service
─ Only entitled to contracted-out benefits
─ Unsuccessful claim in the Employment Tribunal
─ After several appeals, Mr Walker appealed to the UK Supreme Court
46Case Law Update
Eversheds Sutherland | 10 October 2017 |
Decision
Survivors’ benefits for civil partnerships and same-sex marriages
Walker v Innospec
─ Supreme Court held the exemption under the Equality Act 2010 was incompatible with the EU Framework Directive
─ Mr Walker’s spouse was therefore entitled to Spouse’s pension based on his full period of pensionable service.
─ What about other temporal limits?
─ Note: O’Brien case
47Case Law Update
Eversheds Sutherland | 10 October 2017 |
Practical implications for public sector schemes
Survivors’ benefits for civil partnerships and same-sex marriages
Walker v Innospec
─ General rule – no temporal limitation
─ Consider current application of requirement for full equality for opposite-sex benefits
48Case Law Update
Brewster v NILGOSC
Eversheds Sutherland | 10 October 2017 |
Facts
Surviving Cohabitees’ Benefits
Brewster v NILGOSC
─ Co-habiting partner died
─ Spouse’s pension payable to “a surviving spouse, nominated cohabiting partner or civil partner”
─ No nomination form completed (and not required for married or civil partners)
50Case Law Update
Eversheds Sutherland | 10 October 2017 |
Decision
Surviving Cohabitees’ Benefits
Brewster v NILGOSC
─ Supreme Court held that NI LGPS had no convincing justification for the nomination form policy
─ Nomination requirement amounted to unequal treatment on grounds of marital status in breach of Art.14 ECHR
─ Did not decide whether the NI LGPS could properly have refused to make any provision for cohabitants’ pensions in the first place
51Case Law Update
Eversheds Sutherland | 10 October 2017 |
Practical implications
Surviving Cohabitees’ Benefits
Brewster v NILGOSC
─ Certain public sector schemes will need amending to remove the nomination form requirement. LGPS schemes have already been amended
─ Support in dealing with member queries
─ Decision focused on requirement for nomination form –media coverage portrayed the issue as a wider one of cohabitees’ pension rights
52Case Law Update
Sargeant v London Fire and Emergency Planning Authority
McCloud v Ministry of Justice
Eversheds Sutherland | 10 October 2017 |
−What does the law say about age discrimination?• Unlawful since 1 December 2006
• Can be objectively justified
−How does this work in a pensions context?• Pensions are age related!
• Exceptions in Regulations
Age discrimination
54
Case Law Update
Eversheds Sutherland | 10 October 2017 |
− Facts:• Transitional provisions intended to mitigate effect of compulsory
pension changes on older workers
• Sargeant as representative of segment of younger Firefighters who did not benefit from full transitional protection that older Firefighters did
− Decision: • Tribunal found that transitional protection had objective justification
• Confusingly followed McCloud v MoJ case in ET (same level of court) which found the opposite on similar (but not identical) facts
− Practical impact as yet unclear – appeals and further cases
Recent cases (1)
Age discrimination
55
Case Law Update
Sargeant and Others v London Fire and Emergency Planning Authority and Others
Eversheds Sutherland | 10 October 2017 |
−McCloud and Others v Lord Chancellor and Secretary of State and Another
• Transitional provisions intended to mitigate effect of compulsory pension changes on older workers
• No objective justification
−Harrod v Chief Constable of West Midlands Police (Court of Appeal)
• Compulsory retirement of certain police officers only way to reduce headcount
• Objective justification
Recent cases (2)
Age discrimination
Case Law Update
Eversheds Sutherland | 10 October 2017 |
Practical implications
Transitional protection and discrimination
McCloud & Ors v Ministry of Justice
─ Subject to appeal
─ Government may need to introduce alternative transitional provisions
─ McCloud and Sargeant will be heard at the same time in the Employment Appeals Tribunal
─ Watch this space…
57Case Law Update
Mrs S - Overpayments
58
Eversheds Sutherland | 10 October 2017 |
Facts:
Recovery of overpayments (1)
Mrs S (PO-10270)
─ The NHS BSA paid Mrs S a higher benefit that entitled to under the NHS injury scheme (around £30k)
─ The NHS BSA initially agreed to write off half of this but still wanted to recover half
─ Mrs S argued she had changed her position – purchased a car under a hire purchase agreement
59Case Law Update
Eversheds Sutherland | 10 October 2017 |
PO decision:
Recovery of overpayments (2)
Mrs S (PO-10270)
─ Mrs S had acted in good faith and could rely on the defence of estoppel/change of position
─ Mrs S had relied on the information provided to her by NHS BSA and changed her position as a result of this
─ Overpayments could not be recovered
─ PO directed that the scheme had to pay back any sums recouped, with interest, and could not pursue recovery of overpayments any further
60Case Law Update
Eversheds Sutherland | 10 October 2017 |
Practical considerations:
Recovery of overpayments (3)
Mrs S (PO-10270)
─ Care need to be taken when providing information to members re benefits
─ Checks / audits and reconciliations as needed
─ If an error occurs – deal with it as soon as possible
61Case Law Update
Eversheds Sutherland | 10 October 2017 |
Questions?
62Case Law Update
eversheds-sutherland.comThis information pack is intended as a guide only. Whilst the information it contains is believed to be correct, it is not a substitute for appropriate legal advice. Eversheds Sutherland (International) LLP can take no responsibility for actions taken based on the information contained in this pack.
© Eversheds Sutherland 2017. All rights reserved.
Fire Pensions Conference 2017
Alec Bennett
Principal Associate
E: [email protected]: +44 121 232 1526M: +44 739 325 4384
Eversheds-Sutherland (International) LLP115 Colmore Row BirminghamB3 3ALUnited Kingdom
LGA and SAB Update
LGA Update
• Amendment Orders
• Voluntary Scheme Pays
• Pensionable Pay
• Tax
2017 amendment orders laid
• SI 2017/892 - Survivors benefits
• SI 2017/888 - Minor 2015 scheme
amendments
• Technical note issued on 17th September
2017
Amendment to Ill-Health
• Members remain in their existing pension
scheme, until a final decision is made
(including an appeal) by the IQMP.
• This amendment takes affect from 6th October
2017 and should not be applied
retrospectively.
• Payroll MUST be informed once an IQMP
process is initiated to avoid moving a member
to the 2015 scheme (will need to consider
administrators too!)
Ill-Health for transition members
• Need a process in place to ensure payroll
does not move a member into the 2015
scheme IF an IQMP is currently taking place
Voluntary Scheme Pays (VSP)
• When does VSP apply
• Guidance note
• Applying debit
When does VSP apply?
• MSP applies
• HMRC AA limit of £40k is exceeded in single scheme
• VSP applies when MSP does not!
Guidance note
• Can an FRA operate VSP?
– Pay annual allowance charge
– Adjust members benefits to reflect the payment
made
• When should an FRA operate VSP?
– Scheme Members with a tapered annual
allowance of less than £40k
– Transitional members with service in one of the
1992 or 2006 schemes and the 2015 scheme and
exceed £40k AA or Taper limit
Applying the debit
• Guidance being considered
• Proportionate
Pensionable Pay
• Case Law
• Definitions
• Employment
Case Law
• Existing case law for pensionable pay, namely
Norman V Cheshire and Kent and Medway
Towns vs PO and Hopper (often referred to as
‘Blackburne principles’).
• It should be noted that the Blackburne
principles were considered in the context of
Final Salary pensionable pay.
Blackburne Principles
• The payment should
– not be “one-off” or episodic in nature or
intermittent;
– be part of “regular pay”;
– be calculated in accordance with ordinary rate of
pay;
– have some permanence i.e. not only payable if the
firefighter is called upon;
Blackburne Principles
• relate to:
– pay for work done by way of duties under the
contract of employment;
– work that is by way of work of the employee’s role;
and
– work done in the ordinary course of fulfilling the
role
‘Allowance’ ‘Emolument’ ‘Temporary’
• The terms ‘allowance’, ‘emolument’ or
‘temporary’ basis are not defined in the
regulations.
Employment
• Important principles is to understand what the
persons contract of employment requires
them to do.
• What is it about the promotion that qualifies it
as temporary?
Pension Tax
Exceeding LTA
• Pension Benefits exceed LTA AND the
permitted lump sum exceeds the permitted
maximum
• BCE 6 = Payment of a permitted lump sum
• BCE 2 = Payment of scheme pension
Unauthorised payment (40% + SSC)
• There must be available LTA. Any lump sum
paid in excess of the maximum pension
commencement lump sum is an unauthorised
payment.
• Therefore BCE 6 (payment of lump sum sum)
occurs first and then BCE 2 (payment of
scheme pension)
LTAELS (55%)
• There must be no available LTA.
• Therefore BCE 2 (payment of scheme
pension) occurs first and then BCE 6
(payment of permitted lump sum)
Previous HMRC View
• Authorised payments should take priority over
unauthorised payments, therefore the BCE2
(payment of scheme pension) takes priority
over BCE6 (payment of permitted lump sum).
• ‘Obvious’ conclusion… - treated as
LTAELS???
Useful referencesFPS 1992
[Part B]
FPS 2006
Standard and Special Members
[Part 14]
FPS 2015
[Part 13, Chapter 3]
Scheme Rules [Rule B11] [Part 14, Para 2] [Part 13, Chapter 3]
Tax Charge Debit -
GAD Guidance
GAD Guidance GAD Guidance GAD Guidance
Finance Act 214 to 226, Part 4, Chapter 5 of the Finance Act 2004
http://www.legislation.gov.uk/ukpga/2004/12/part/4/chapter/5/crosshea
ding/lifetime-allowance-charge
Pensions Tax Manual https://www.gov.uk/hmrc-internal-manuals/pensions-tax-
manual/ptm083000
Khub forums https://khub.net/group/thefirefighterspensionsdiscussionforum/forum/-
/message_boards/category/5611535
‘
Scheme Advisory Board
‘
SAB Update
Levy
Communications
Committees
Valuation
‘
Levy – what your money pays for
Communications
Local Pension Board Training (each board is
entitled to a free training session)
Attendance at board meetings
Commissioned tax awareness sessions
Independent actuarial review of 2016
assumptions
Free 2 day conference
Championing Fire Pensions
‘
Engagement - Just a snapshot
Meeting Police and Fire minister
Board training sessions and meetings
Technical groups and regional groups
Industry events
Engagement with third party administrators
Software supplier meetings
Dashboard meetings
‘
Communications
SAB board website – www.fpsboard.org
Further website development
Regular Chair’s Update
LGA Bi-monthly bulletins
Board Survey to be launched ASAP
ABS survey
Communications working group
‘
SAB sub-committees
Cost management and effectiveness
Administration and Benchmarking
Effectiveness of local pension boards
http://www.fpsboard.org/index.php/board-committees
‘
2016 Scheme Valuation
Avoiding or minimising impacts on employer
contributions and the Cost Cap
Treatment of past service costs
Valuation Assumptions
‘
Treatment of past service costs
Milne v GAD commutation payments
18-20 contribution refunds
Modified RDS Scheme costs
Identifying any additional costs
‘
Employer
Contribution
Cost Cap
GAD v Milne This should not be
considered an
employer cost.
Should not form part
of the cost cap
calculation in line
with HMT policy
on cost cap
Modified RDS The board consider
that the cost of
service prior to 2007
should be excluded
from employer costs
Should not form part
of the cost cap
calculation for active
service before
31.03.2015 and for
deferreds and
pensioners.
18-20 Contributions
Holiday
Should not be
considered an
employer cost.
Should not form part
of the cost cap
calculation
‘
Valuation assumptions
Pensioner mortality
Age retirement
Ill-Health retirements
Voluntary Withdrawal
Death before retirement
Promotional Pay
Commutation
Family statistics
Lunch
Welcome back
www.local.gov.uk
Data challenges in the pensions landscape and GDPR
The view from the regulator
On the importance of data
• We are in the information business. We generate information to help
people make choices, information to help companies know how much to
pay in contributions, and information to help us sort out who manages
schemes well and who doesn’t.
Margaret Snowdon, PASA Chair and TPR NED
• Accurate records are key to ensuring
– the right members get the right benefits at the right time,
– accurate valuations and calculation of the cost cap
• Poor data integrity has a real impact on members
What are the challenges facing pension schemes?
• Major data projects
– GMP reconciliation
• Member engagement
– Online access
• Enhanced requirements and focus
– Regulator focus inc reporting requirements
– Money laundering regulations (June 17)
– GDPR (May 2018)
– Dashboard
GDPR
• General Data Protection Regulation applies from 25 May 2018
– Brings consistency across the EU
– Strengthens provisions of current data protection
• Stronger individual rights (new right to data portability)
• New obligations on data processors
– 72 hour reporting if a breach is likely to result in a risk to people’s
rights and freedoms
– Greatly enhanced fines available to the ICO
– Will remain after we leave the EU
• Data Protection Bill
– Will replace 1998 Act
– Some implementation of GDPR, but other aspects.
– Pension scheme ‘exception’
Do you?
• Do you understand what data processing activities are carried out in your
scheme? Are these documented?
• Do you know on which grounds you will be processing data?
• Do you need a Data Protection Officer?
• Do you have data protection policy and procedures in place?
– Inc a process for breaches
• Have you reviewed and updated third party agreements? (mandatory
provisions)
• Are you able to demonstrate compliance?
The good news
“If you are already complying with the terms of the Data Protection Act,
and have an effective data governance programme in place, then you are
already well on the way to being ready for GDPR” - Steve Wood, Deputy
Commissioner for Policy, ICO
• Controls put in place for GDPR help you meet your internal controls
requirements under pension legislation
Useful links on GDPR
• ICO - 12 steps to preparing for the GDPR
• ICO - myth-busting blog
• ICO - overview of the GDPR (evolving page)
• Industry guides also being published eg
– PLSA guide
– LGPS briefing
• DCMS Data Protection Bill factsheet
TPR focus
• Top risk for PS schemes and key focus (corporate priority)
• Our expectations
– Governance:
• Know & understand your duties
• Appropriate focus/priority
• Appropriate internal controls
Administrators
Employers
Data security
– Data review
– Robust improvement plans
What does this mean in practice?
• Know & understand your duties
– Pension legislation and other
– TPR code/guidance
– Accountability cannot be delegated
• Appropriate focus/priority
– Administration and record-keeping seen as lower priority
– Large schemes much more likely to feature admin on the agenda
– Special projects (GMP, administrator switch) drive focus
What does this mean in practice? (2)
• Appropriate internal controls
– SLAs, even with in-house administrators.
– Processes to receive, check and review employer data
– Processes around DPA and data breaches
• More guidance coming from TPR
• Data review
– Annually and on triggering events
– Robust!
• Robust improvement plans
– New TPR guidance
TPR activity
• Quick guide to record-keeping published in November 2017
• Quick guide to improvement plans published September 2017
• Record-keeping measures being introduced in scheme return 2018
– New: common/key scheme-specific data
– Clarity on how to measure data and what we mean by quality
• Assessing pension scheme landscape’s cyber security
• Refreshed materials inc toolkit
Improving your data quick guide
• Aim to help design a plan or assess an existing one,
In summary
• Good data is critical to the running of your scheme
• GDPR is one of many drivers of good data management.
• Take action now: assess your data and put an improvement plan in place
End of contracting-out
Jayne Wiberg
10 October 2017 www.local.gov.uk
Agenda
• ‘State Pension Reform’ – Why?
• New state pension – 6 April 2016
• What is contracted-out reconciliation?
• Why reconcile?
• Consultation on the Indexation and Equalisation of
Public Service Pension Schemes
• Ministerial Direction – update on revision
• How we are working for you?
‘State Pension Reform’ – Why?
• Over-complex system built up over last 40-50 years
– Basic State Pension
– Graduated benefit
– SERPS / Additional Pension (AP) & State 2nd Pension (S2P)
– Contracting-out, contracting- out deductions
• Remove complexity to allow individuals to know what pension
to expect & how much extra they need to save
New State Pension (nSP)
• New State Pension (nSP) introduced – applies to
individuals who reach SPA after 5 April 2016
• Flat rate pension (no additional pension)
• Previous contributions recognised
• Weekly rate of old and new system and ‘better of’
= “Foundation Amount”
What is contracted-out reconciliation?
• Data match of HMRC and pension Scheme records
• Approximately 16 million contracted-out individuals in the UK
(aggregate of active, deferred and pensioner members)
• Typically matching the following records:
– Name
– NI Number
– Contracted-out start date
– Contracted-out end date
– Type (active – deferred – pensioner – frozen refund)
– Value of Guaranteed Minimum Pension (GMP)
Why reconcile?• Foundation amount of nSP based on contracted out
service and contributions
• Experience of HMRC data is proving to show scheme liability
is not correct
• Letter to contracted out members December 2018
• Legal obligation?
– No but by virtue of the Law are you duty bound to reconcile? Lets
discuss……
The LawPensions Act 2004 – section 249B
Inserted by Schedule 4 of Public Service Pensions Act 2013
Requirement for internal controls: public service pension
schemes - to support record keeping requirements
“(1)The scheme manager of a public service pension scheme must
establish and operate internal controls which are adequate for the
purpose of securing that the scheme is administered and managed-
(a)in accordance with the scheme rules, and
(b)in accordance with the requirements of the law”.
The LawPublic Service Pensions (Record Keeping and Miscellaneous
Amendments) Regulations 2014
Retention of records of member and beneficiary information
• the name of each member and of each beneficiary
• the date of birth of each member and of each beneficiary
• the gender of each member and of each beneficiary
• the last known postal address of each member and of each beneficiary
• each member’s identification number in respect of the scheme;
• the national insurance number of each member who has been allocated such a number
• in respect of each active, deferred and pensioner member:
– the dates on which such member joins and leaves the scheme;
– details of such member’s employment with any employer participating in the scheme
including
– the period of pensionable service in that employment; and
– the amount of pensionable earnings in each year of that employment.
The Law
Data Protection Act 1998 Schedule 1: The Data
Protection Principles: Part I – The Principles
“(4) Personal data shall be accurate and, where
necessary, kept up to date”.
The Law
Pensions Act 2004 – section 90A
Inserted by Schedule 4 of Public Service Pensions Act 2013
Codes of practice: public service pension schemes“(1)The Regulator may, in relation to public service pension schemes, issue
codes of practice-
(a)containing practical guidance in relation to the exercise of functions under
relevant pensions legislation, and
(5)A code of practice issued under this section is admissible in evidence in any
legal proceedings (within the meaning of section 90) and, if any provision of such
a code appears to the court or tribunal concerned to be relevant to any question
arising in the proceedings, it must be taken into account in determining that
question.”
The Pensions Regulator
Governance and administration of public service pension
schemes – Code 14 – April 2015
Internal controls and managing risks
Public service pension schemes need to have good internal controls. They
are a key characteristic of a well-run scheme and will enable risks to the
scheme to be managed effectively.
Record-keeping
Failing to maintain complete and accurate records can affect the ability of
your public service pension scheme to carry out basic functions. Accurate
record-keeping is crucial in ensuring that benefits are paid correctly.
The Pensions Regulator
Extract from ‘A quick guide to record-keeping’
“Public service scheme managers must keep records as
specified in legislation including on transactions and
pension board meetings and decisions”
“From 2017, some schemes will need to report their record-
keeping score to us via the scheme return. We will use
these scores to target schemes that are failing their duties,
so its now more important than ever for schemes to get
their records in order ”
The Pensions Regulator
Compliance and enforcement policy for public service
pension schemes – June 2015
Relevant to anyone who has legal requirements or responsibilities relating to
the management or administration of a public service pension scheme, or
where those responsibilities have been delegated or outsourced – for
example scheme managers, pension boards and administrators.
The Pensions Regulator
Compliance and enforcement policy for public service
pension schemes – June 2015
“We expect those involved in the governance and administration of public service schemes to
comply with the law and strive to deliver good outcomes for members, recognising that
governance and administration standards and practices impact upon the overall service provided
to members and other beneficiaries throughout their membership, including the payment of the
correct benefits to the right people at the right time.
However, we are aware that there may be situations where some schemes do not fulfil their
responsibilities. We regard failures to address poor standards and non-compliance with the law
as unacceptable. Should a scheme manager or pension board member (or other person
responsible for complying with legal requirements) fail to comply with their legal requirements
under pensions legislation, we may select from one or more of our enforcement options. These
range from statutory compliance notices and monetary penalties, to criminal prosecution”.
Duty bound to reconcile?
Consultation on….
• Consultation on Indexation and
Equalisation of GMP in public service
pension schemes
• Published 28 November 2016
Indexation & Equalisation
• Fully indexed public service pension benefits first introduced
in 1975 by way of Government assurances.
• Payment of full indexation split between the State and the
Public Service Pension Scheme (in other words AP>=GMP or
AP<GMP depending upon circumstances).
• Full indexation abolished after 5 April 2016 for pensioners
who reach SPa after 5 December 2018
• Consultation
– re-examines the 1975 Government indexation assurances
– Addresses equalisation issues?
Option - Case by CaseScope: Members who reach SPA after 5
December 2018
Calculation: Two stage calculation performed annually
Achieves full indexation: No – the comparison at stage 1 can be offset
by changes to the nSP.
Achieves full equalisation: Not fully – though goes a long way
Changes to primary legislation: Yes
Changes to PSPS rules: Yes
Estimated cost to the public
service (excl. administration):
1.5 billion (represents 30% of the total cost
of full indexation) which equates to
approximately 0.15% in total liabilities
(assuming 2% CPI growth per annum)
Option - Full indexation (AP<GMP)
Scope: Members who reach SPA after 5 December
2018
Calculation: Performed annually (as is currently the case)
Achieves full indexation: No – though only in so much that increments
are not revalued which is the case for
payments prior to 6 December 2018.
Achieves full equalisation: No
Changes to primary legislation: No – only Ministerial Direction requires
changing
Changes to PSPS rules: No
Estimated cost to the public
service (excl. administration):
5 billion which equates to approximately 0.5%
in total liabilities (assuming 2% CPI growth per
annum).
Option - Conversion
Scope: Active and deferred members who reach
SPA after 5 December 2018
Calculation: One off exercise, though likely to be
spread over a period of months.Achieves full indexation: Yes
Achieves full equalisation: No
Changes to primary legislation: Yes
Changes to PSPS rules: Yes
Estimated cost to the public
service (excl. administration):5 billion which equates to approximately
0.5% in total liabilities (assuming 2% CPI
growth per annum).
So what’s next?
• Consultation closed on 20 February 2017
• Sensitive ‘mini’ GMP working group met with
HMT in September 2017
• HMT hoping to publish outcome by the end of
2017
The Ministerial Direction
What is it?
• Section 59 of the Social Security Pensions Act
1975– Applies AP>=GMP
– PSPS pay increases in excess of Pre 88 GMP, plus
– PSPS pay increases up to 3% of Post 88 GMP
• Section 59A of the Social Security Pension Act
1975 plus Ministerial Direction (6 April 2016)– Applies AP<GMP
– PSPS pay increases as above, plus….
– PSPS pay increases to Pre 88 GMP, plus
– PSPS pay increases Post 88 GMP beyond 3% if index >3%
Simple example…..
Payroll variables AP>=GMP
increases paid by?
AP<GMP
increases paid by?
Benefits in excess of total
GMP PSPS PSPS
Post 5 April 1988 GMP PSPS up to 3%
State in excess of 3%
PSPS
Pre 6 April 1988 GMP State PSPS
When does the Ministerial
Direction apply?
• For pensioners who reach SPa prior to 6 April
2016 (AP<GMP):
– Generally - When the pensioner is not in receipt of
additional pension or inherited additional pension
from the State
• All pensioners who reach SPa after 5 April
2016 and prior to 6 December 2018
(AP<GMP).
What is wrong with the
current Ministerial Direction?
• Survivors who are entitled to inherited additional pension,
whose SPa is after 5 April 2016 and prior to 6 December
2018 are not addressed
– Such cases should be AP>=GMP
• Survivors who are not entitled to inherited additional
pension, whose SPa is after 5 December 2018 are not
addressed
– Such cases should be AP<GMP
• Revised Ministerial Direction to be issued and will be back
dated to 6 April 2016 (or so we have been assured)
How we are working for you?
• Member of the ‘Sensitive’ mini working group
• Member of the GMP Technical Working party
• Advisor to HMT
• In the process of producing comprehensive
‘increases to pensions guide’ - The bible!
• Working with HMT, HMRC and DWP
• Delivering presentations at conferences
• Anything to do with the end of contracting out
and GMP!
Closing remarks
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Thank you for coming
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Have a safe journey home
