Firefighter Pension Schemes - Scheme Advisory Board 03 September 2020 - Firefighters ...
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Firefighter Pension Schemes Scheme Advisory Board 03 September 2020
2016 Valuation Results • The average employer contribution rate was increased to 30.2%, largely as a result of SCAPE rate increases, included 4.5% increase to pay for cost cap increases. • The employer cost cap target of 16.8% was calculated at 11.6% for 2016, which triggered the mechanism for improvement. • SAB discussions started on benefit improvements then the process was paused
Age Discrimination • The case is on the transitional provisions of the 2015 scheme. • It is these provisions that allowed certain members by virtue of age to remain protected in the final salary scheme or move to the 2015 scheme at a later date. • Tested in Court by the McCloud and Sargeant cases
Remedy 1. How should the transitional provisions be made lawful going forward? 2. How do you compensate members who have been subject to those provisions since 1st April 2015
Written Statement – HCWS187
• The government is developing proposals to address the unlawful age discrimination identified by the Court of Appeal in the 2015 reforms to
the Judicial and Firefighters’ pension schemes.
• On 15 July 2019, the government announced it would take steps to remove this discrimination retrospectively (HCWS1725). It confirmed
that this would apply to pension scheme members with relevant service across all those public service pension schemes that were introduced
in 2014 and 2015, regardless of whether individuals had made a claim. This is a complex undertaking, and it is important to get it right.
• Since February 2020 relevant pension schemes have been conducting technical discussions with member and employer representatives to
seek initial views on the government’s high-level proposals for removing the discrimination.
• I am grateful for the constructive engagement of trade unions, staff associations, public service employers and other stakeholders in these
discussions. The government is considering the initial views of stakeholders and continuing to work through the details of the technical design
elements of the proposals. Detailed proposals will be published later in the year and will be subject to public consultation. The government will
welcome views on these proposals.
• For the avoidance of doubt, members of public service pension schemes with relevant service will not need to make a claim in order
for the eventual changes to apply to them.
• I would like to reassure members that their pension entitlements are safe. The proposals the government is considering would allow relevant
members to make a choice as to whether they accrued service in the legacy or reformed schemes for periods of relevant service, depending
on what is better for them. The government will provide more detail later in the year, but if an individual’s pension circumstances change as
a result, the government may also need to consider whether previous tax years back to 2015-16 should be re-opened in relation to their
pension.
• The government will also set out its proposal to remove the discrimination for future service in the forthcoming consultation.
• In January 2019, the government announced a pause to the cost control mechanism in public service pension schemes, due to uncertainty
about benefit entitlements arising from the McCloud judgment. Alongside its proposals for addressing discrimination, the government will also
provide an update on the cost control mechanism.Consultation Launched • Move all members to FPS 2015 on 1 April 2022 • Remedy Period 1 April 2015 to 31 March 2022 • Consultation on immediate choice vs deferred choice • Technical Details – Contingent benefits – Annex A • Pensions Tax Relief – Annex B • Cost Cap Unpaused Page added to website - http://www.fpsregs.org/index.php/legal-landscape/age- discrimination-remedy-sargeant
Unknown
Immediate Choice
Known
Deferred Choice
Final Salary CARE scheme with
Schemes discrimination Post Remedy Retirement
Pre 2015 protection
Everyone moves to
1 April 2015 to 31
1992 Scheme FPS 2015 at 1 April
March 2022
2022
Pension would be
2006 Scheme (Special Choice to receive CARE Final salary links
combination of
Members) scheme benefits if better retained
previous entitlements
Expected to operate in
Under DCU: Default exactly the same
2006 Scheme manner for transitional
scheme final salary
benefitsChoice Sometime after
Immediate Choice:
2022
Legacy Final salary Scheme
Remedy Period: 01.04.2015 to
Service to 31 31.03.2022
March 2015 1. CARE Scheme
CARE Scheme for allfor all
unprotected FPS 2015
unprotected members as
members: Choice to be treated
final salary
All members
2. Final
2. Final salary
salary scheme
scheme for all
for all protected
members:
protected Choice to
members be treated as moved 1 April
CARE (most likely FPS 2006 only)
3.
2022
3.
MixMix of Final
of Final salary
salary and and
CARE for taper
members: Choice of either final
CARE for taper members:
salary OR CARE for WHOLE of
remedy periodDCU
DCU: Default applied at 2022
Legacy Final salary Scheme
Remedy Period: 01.04.2015 to
Service to 31 31.03.2022
March 2015 Members
1. CARE Scheme for all
FPS 2015
defaulted members:
unprotected to final DCU
salary in 2022 All members
2. Final salary scheme
for all protected moved 1 Choice made
members
April 2022 for remedy
3. Mix of Final salary and period, might
CARE for taper members
switch back
to CAREFPS 2015 • Pensions to unmarried / un civil partnered partners • Death in service grant of three times lump sum • Flexible retirement • No abatement • ‘One’ Pot ill health and Death
Double accrual guarantee • Member joins at 01 April 1999 • Retires at 31 March 2024 aged 55 • Total Service = 25 years • Double accrual formula (A ÷ 60 ) × (B ÷ C) * Final Pensionable Pay • A = 30 Maximum 60ths if no change Ie double accrual on 25 years • B = 23 Ie service in FPS 1992 from 1 April 1999 to 31 March 2022 • C = 25 years • Final Pensionable Pay = £30,000 • (30 ÷ 60 ) × (23 ÷ 25) * £30,000 = £13,800 • At 31 March 2015 this would have been (30 ÷ 60 ) × (16 ÷ 25) * £30,000 = £9,600
High level comments
Immediate Choice Deferred Choice Underpin
The choice applies only to a retrospective 7-year period. Not ongoing for a member’s career
Immediate choice leaves everyone where they are, Defaults everyone back to legacy (final salary)
but a choice will need to be made within 1 or 2 years schemes at 1 April 2022
from 2022
Risk of making ‘wrong’ decision FPS 2015 ‘might’ be better for some former members
of FPS 2006
A default decision is offered for those who do not Why can’t a similar default be offered for FPS 2006
make a choice, which keeps them in current scheme
for reform period. Impacts taper group
FPS 1992 will require additional contributions to be paid
FPS 2006 would trigger a refund of contributions to be paid
Tax Relief on pension contributions to be calculated in year of payment, no retrospective tax relief
Annual Allowance to be calculated at date of choice if Annual Allowance to be calculated at 1 April 2022 on
different benefits are chosen final salary basis back to 1 April 2017
Second annual allowance calculation at retirement,
either tax refund owed or tax will be dueWhat we don’t know • Effect of actuarial assessment on employer contributions and cost cap • Double accrual guarantee extension • Taper Members • Deaths
A few questions already posed… • Policy intent for tapered members How would this affect… a member with taper protection who accrued a full 30 years’ service before the taper date and then they transitioned into the 2015 scheme. They then subsequently retired with a full 30 year FPS 1992 pension and were left with a deferred FPS 2015 pension, which they enquired about transferring to the Civil service scheme. What about members who could achieve 30 years service by 31 March 2022 and will then move to FPS 2015 • Timetabling This is extremely important to enable understanding the effect on administration of the proposed remedies. This will effect how much of the remedy could be automated and how much will rely on manual processes. We also cannot start to have commercial conversations with suppliers about expected costs without an idea of the timeline.
Tax: Annex B 1. Under DCU will legislation to bring in the default return to legacy schemes ‘in 2022’ be primary or secondary as it will significantly impact statutory tax timescales if it is primary. Should this be ‘in’ or ‘effective from’? 2. Inconsistent terminology about the member choice, which in turn triggers the statutory clock. 3. No mention of a time period to repay contributions, this might effect comments on interest 4. Unclear between immediate choice and DCU, how refunds of contributions intend to be taxed. Immediate choice appears to suggest it will be taxed as income, DCU is not clear. 5. What specific scenarios in B.23 does HMT have in mind? Is this reflecting the complex annual allowance calculations at present that a member accrues pension growth across final salary and CARE?
A few questions already posed… 6. The significance of B.23 for Fire affects how strong a response on independent tax advice would need to be. What kind of discussion has been had with HMT discussing the complexities of the Fire scheme, to illustrate that the level of knowledge of the scheme in independent advisers may not to be to the standard required, how will HMT overcome this? 7. For the purposes of paying tax, it is unclear and contradictory on what is meant by a ‘small minority’. B.40 recognises that that Fire schemes which involve double accrual see higher AA liabilities. So does HMT still see this as being a small minority or not? 8. Regardless, the pension growth calculations still need to be done for every scheme member to adjust their annual allowance calculations and adjust whether there is a charge. This has a significant impact on admin and will be significantly affected by when the legislation is introduced.
Implementation considerations
• Unfunded locally administered scheme
• What tools will be available
• 45 Scheme Managers
• 16 administrators (possibly decreasing)
• 2 software suppliers (contract owned by administrators not scheme managers)
• What tools will be available and who will build them [EU accessibility]
• Access to financial advice
• Education, not just members but FRAs and Administrators
• Individual scheme decisions, does this refer to decisions by responsible authority, ie
Home Office or each of the 45 scheme managersYou can also read
