In this insight we provide our usual round-up of the latest pensions developments including the PPF’s thoughts on a possible role as a public consolidator for defined benefit pension schemes.
TPR blog on the role of pension administrators
The Pensions Regulator (TPR) has published a blog outlining how it intends to work more closely with pension scheme administrators. Recent events including COVID-19, cyber leaks, and the development of the Pension Dashboard have shown the importance of engaging directly with a good pension administrator.
TPR is proactively engaging with an increasing number of third-party pension administrators on a voluntary basis.
TPR plans to look more closely at how trustees interact with administrators and what barriers currently exist. In turn, they aim to improve the accuracy of the scheme’s annual benefit statements, valuations and membership data. They note that the Pensions Dashboard Programme has been key to improving engagement between trustees and their administrators.
TPR is also building its two-way engagement. Following its pilot exercise in January 2022, whereby a team was dedicated to engaging directly with third-party pension administrators to extend our reach and influence, TPR gained a better understanding of current market challenges in more detail, enabling more visibility of administration risk and have been able to embed the lessons from the pilot into the ongoing design of the Administrator Relationships initiative.
Firefighters’ Pension Scheme: regulations introduce further remedy for retained firefighters following ECJ’s decision in O’Brien
The Home Office has responded to its March 2023 consultation on proposed changes to the Firefighters’ Pension Scheme (FPS) in relation to ‘retained firefighters’ (part-timers providing fire cover).
Following the Employment Tribunal’s decision in Matthews and others v Kent and Medway Town Fire Authority and others [2006] ICR 365 that retained firefighters had been treated less favourably than their full-time colleagues regarding access to pensions, a new pension arrangement (the ‘modified scheme’) was introduced for retained firefighters employed between 1 July 2000 and 5 April 2006. The modified scheme included a backstop date restricting pension entitlement to service accrued from 1 July 2000.
In March 2023, the Home Office consulted on a further remedy for retained firefighters in relation to Matthews following the ECJ’s decision in the related case of O’Brien v Ministry of Justice. The European Court of Justice (ECJ) held that part-time judges who were in service on 7 April 2000 (the date on which the Part-time Workers Directive (97/81/EC) was transposed into national law) could include their full period of earlier service in calculating their pension from the Judicial Pension Scheme.
The Home Office has now published its consultation response. Regulations implementing the further remedy in the FPS have been laid before Parliament. The Firefighters’ Pension Schemes (England) (Amendment) Order 2023 (SI 2023/986), comes into force on 1 October 2023. The further remedy will amend the FPS and offer certain categories of individuals employed as retained firefighters between 7 April 2000 and 5 April 2006 the opportunity to purchase additional pension entitlement in respect of their pre-1 July 2000 service.
Triple lock – increase in state pension likely to be driven by earnings growth
On 12 September 2023, the Office of National Statistics released a publication of provisional earnings data for July 2023 that suggests next year’s increase in state pensions will be driven by earnings growth rather than price inflation.
This could see the old state pension rise to around £169.50 pw from April 2024 and the new single state pension to £221.20 pw. This would result in annual increases of £700 and £900 respectively.
The price inflation element of the triple lock is due out on 18 October so this earning figure could still be modified.
PPF’s 2024/25 levy consultation proposes £100m levy estimate
The Pension Protection Fund (PPF) has published its 2024/25 levy consultation seeking views on the proposed levy estimate and its approach to future levy collection.
The PPF has announced that it expects to collect £100m in levy next year, reducing the levy by half compared with the 2023/24 estimate. For 2024/25, the PPF intends to set the levy estimate at £100m.
There will be small adjustments to the levy scaling factor and scheme-based levy multiplier so that the scheme-based levy remains within the legislative maximum of 20% of the total levy. As a result, the PPF estimates that 99% of schemes will see a reduced levy. The remaining 1% expecting to see an increase is due to individual scheme circumstances.
Although the risks to the PPF are currently lower, particularly as scheme funding has strengthened, the consultation explains that the PPF’s governing legislation makes it necessary to continue to collect a levy to mitigate against any unexpected funding challenge. There are legal limits on the extent to which the levy can be increased from year to year (a maximum increase of 25%), preventing the PPF reducing the levy any further.
The PPF intends for the levy to remain at this level in future years unless there is a significant change in the risks it faces or within the current legislative framework.
The consultation closes on 30 October 2023.