Public sector pensions: key issues

Michaela Berry rounds up some of the key issues in relation to public sector pensions from a legal viewpoint.

Local Pension Boards

For better or worse, LGPS [Local Government Pension Scheme] sections are required to have established Local Pension Boards no later than 1 April 2015. Each Administering Authority should have approved the establishment of a Local Pension Board including arrangements for the Board’s composition and terms of reference.

We are now in a key period when the newly established boards will become operational within a reasonably practicable period over the coming quarter (LGPS Advisory Board guidance suggests no more than a four-month period between establishment and getting the Boards up and running). The Local Pension Board’s remit is to “assist” Administering Authorities in compliance with Regulations. The newly created Boards will need to establish systems and procedures for ensuring that they are properly discharging their functions.

There is much to be done on new Boards and a lot of guidance from the Pensions Regulator and the LGPS Advisory Board to absorb. Boards will need to address the knowledge and understanding requirements. LGPS Boards are required to be conversant with pensions law and with a range of other regulatory materials. Establishing a policy and framework for meeting this requirement should, in our view, be at the top of their agenda.

Pensions liberation

The issue of pensions liberation continues to result in a significant amount of work for transferring schemes. Members are attracted by the idea of accessing their funds early, and may be tempted or persuaded into trying to do so via vehicles which turn out to be fraudulent. Authorities face enormous pressure to protect members from losing large amounts of their retirement savings, but it can be an extremely difficult job to determine whether or not a receiving scheme is a bona fide scheme or a fraudulent scheme.

The Pensions Ombudsman has received a significant number of member complaints in relation to pensions liberation transfers, both from members whose transfers have been processed (and who have subsequently lost money in fees and tax) and from members whose transfer requests have been refused by their schemes. A small number of decisions have been released, the majority of which relate to cases where the receiving arrangements were not occupational pension schemes within the definition in legislation and therefore no transfer could properly be made to them. However, we are still waiting for decisions to demonstrate what, if any, compensation will be ordered where transfers have been refused by transferring schemes purely on the grounds that they thought the receiving scheme was a scam.

The Pension Liberation Industry Group has published a code of good practice – applicable to both private and public sector schemes – which should be referred to when considering a potential pensions liberation case but it remains an extremely difficult area for schemes to navigate. Authorities should ensure that they have proper processes and strategies in place for tackling transfer requests and responding appropriately.

Transfers and appropriate independent advice

LGPS members have a statutory right to a transfer of their benefits to another occupational pension scheme or personal pension scheme.

The Government has introduced reforms to permit greater ‘freedom and choice’ to DC pension savers, and LGPS members may be amongst those wishing to look to move their DB benefits into DC vehicles from which they will be able to take advantage of some of these flexibilities. In conjunction with the new freedoms, the DWP has created legislation to protect members wishing to transfer benefits from DB to DC schemes. These protective restrictions also apply to the LGPS. The new regulations require Councils to check that a member has received “appropriate independent advice” from an authorised adviser (registered with the FCA) in relation to DB to DC transfers or conversions, unless the total value of the member’s DB benefits under the pension scheme is £30,000 or less.

Under the LGPS Regulations, the administering authority operates the discretion, and so will be responsible for checking whether members wishing to transfer have taken the appropriate advice. Extra care will also be required here to guard against pensions liberation.

Response to consultation

The Government’s Response to Consultation on Local Government Pension Scheme rules was published on 24 April 2015.

As part of the reforms to public sector pensions provision, the Local Government Pension Scheme Regulations 2013 and the Local Government Pension Scheme (Transitional Provisions, Savings and Amendment) Regulations 2014 came into force in April 2014.

Over the last 12 months of application of these regulations by employers and pension administrators, a number of areas needing improvement and clarification have been identified (for example, clarifications regarding the treatment of members on child-related leave, and reserve forces leave). The consultation raised suggested changes with the wider LGPS audience. The Government also called for views on what flexibilities might be offered around exit payments, after earlier representation about the legislation governing payments on employer cessation. The Regulations now ensure that any liabilities that remain outstanding with employers in the scheme can be called for where there are no active contributing members and a period of grace is allowed (the administering authority may suspend the requirement for an exit payment in specific circumstances where the relevant employer is likely to employ an active member within a period of no more than three years).

Michaela Berry is Partner and Head of Public Sector at Sackers. She can be contacted on 020 7615 9548 or This email address is being protected from spambots. You need JavaScript enabled to view it..