Pensions - Articles - Public sector pensions technical changes to LGPS regulations


The Ministry of Housing, Communities and Local Government (MHCLG) has recently launched a consultation on what it has described as “technical” changes to regulations governing the Local Government Pension Scheme (LGPS), prompted primarily by recent legal judgments, including the Supreme Court decisions last year in Walker v Innospec and Brewster.

 However, on closer review, at least two out of the three proposed changes appear to represent more fundamental policy shifts for LGPS, which could have material implications for the scheme. 
  
 Background
 Both Walker and Brewster were claims relating to the payment of survivors’ benefits:
 • In Walker, the Supreme Court ruled that the provisions of the Equality Act 2010 which allowed benefits accrued before 5 December 2005 to be disregarded when calculating the benefits payable to a surviving civil partner or same-sex spouse was unlawful discrimination on grounds of sexual orientation.
 • In Brewster, the Supreme Court held that a provision in the Northern Ireland LGPS regulations which required an unmarried cohabitant to be named on a nomination form in order to be entitled to receive a survivor’s pension was unlawful discrimination on grounds of marital status. A more recent decision of the High Court (in Elmes) has confirmed that the equivalent provision under earlier versions of the English & Welsh LGPS regulations was likewise invalid, for the same reasons.
  
 The proposals – same-sex partners
 In relation to the Walker judgment, the consultation paper states that the Government has decided that all public service pension schemes should make changes to provide surviving civil partners or same-sex spouses with benefits which are the same as those to which a widow of a male member would be entitled. At present the entitlement is instead to the benefits which would be payable to a widower of a female member.
  
 This is a significant change, in that under some of the earlier LGPS schemes, in some circumstances benefits for a widow take account of past service right the way back to 6 April 1978, but benefits for a widower are limited to past service only as far as 6 April 1988. The changes will apply to all civil partnerships and same-sex marriages, meaning that administering authorities will need to re-assess all survivors’ pensions previously paid to surviving same-sex partners and pay arrears where benefits have been paid at a lower rate than will now be required.
  
 However, the Government does not intend “at this point” to equalise the treatment of widowers and widows in opposite-sex marriages, relying on the fact that differential treatment between widows and widowers in respect of pre-1988 service has been held by the courts to be lawful (since the ECJ decision in Barber v Guardian Royal Assurance which required equalisation of pension benefits for male and female members relates only to service from 17 May 1990 onwards). The costs of equalising widowers’ benefits across all public service schemes would be significant (estimates produced as part of the Government’s 2014 review of the issue put it around £2.8bn), and the Government is consequently still pondering the question of whether to proceed.
  
 The proposals – unmarried cohabitants
 The change prompted by the Brewster case is more indirect. Because of the previous rule requiring nomination forms, funds will have refused payment of a survivor’s pension, and as a result, dependent children of the deceased member may have received a larger pension than should have been paid.
  
 In response to the Brewster decision, MHCLG issued a letter to administering authorities in August 2017, setting out its view of how funds should approach such cases, including the question of recovery of overpayments of children’s pensions. However, that letter was not legally binding, since the Secretary of State has no power to issue statutory guidance. MHCLG is concerned that funds are therefore able to take differing approaches to these issues, which may result in beneficiaries in identical situations being treated differently.
  
 The proposed solution is to legislate to include a new power for MHCLG to issue binding statutory guidance on how the LGPS is to operate, so that there is a “standard” approach to this – and any other – area. The consultation paper comments that this provides a greater flexibility to adapt to future developments without the need to find Parliamentary time for changes to the LGPS regulations on each occasion.
  
 Other changes
 The final change included in the paper more genuinely merits the description of a “technical” amendment. It is intended to address an unintended consequence of the changes effective from 14 May 2018 to allow a deferred member to take benefits from age 55 without requiring employer consent. The change was originally made by replacing references to “age 60” in the relevant provision of the earlier regulations with a reference to “age 55”. However, this overlooked the fact that the model adopted in the 1995 regulations was to give members a one-off three-month option starting at age 60 in which to opt to take benefits early, whereas the preferred model now is to give deferred members the right to take early retirement at any time from age 55 onwards.
  
 The proposed change would correct this oversight, and would also give members who have been unable to take early retirement since 14 May 2018 as a result of the drafting error a six-month window in which to make a backdated application.
  
 Comment
 Whilst the proposals in relation to same-sex survivors are understandable following Walker v Innospec, it is difficult to see how the Government can legitimately maintain the differential treatment for widowers in an opposite-sex marriage. Once the proposed changes are in force, a female member in an opposite-sex marriage will have a strong argument that the widower’s benefits paid in respect of her LGPS membership are less favourable treatment on grounds of sexual orientation, given that the widow’s benefits which would be payable if she were in a same-sex marriage would be more generous.
  
 The proposals regarding statutory guidance may also receive a mixed reception. On the one hand, the inflexibility of the LGPS regulations is a perennial problem for funds, particularly since the drafting of the provisions is frequently quite prescriptive. Finding Parliamentary time to make changes adapting the scheme even to planned changes (for instance, changes in the tax regime) is difficult enough, let alone playing catch-up when there are ground-breaking court decisions. On the other hand, the recent litigation over MHCLG’s powers to issue statutory guidance in relation to LGPS investment policy demonstrates that not all observers are happy to see increasing central government control over what is, after all, a local government scheme.
  
 The consultation will close at 11.45 pm on 29 November 2018.
  

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