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    McCloud/Sargeant remedy; Government consultation response - February 2021

    The Government issued their response to the transitional protections remedy consultation on 4 February 2021, where it addressed unlawful discrimination under the 2015 pension reforms.

    The link for the consultation response can be found here

    XPS appreciate that this legislation will affect future member benefit entitlement and that not only will you have questions but will also want to know how your pension may be affected! However, the response is complex with many areas, such as taxation, still to be addressed. Legislation is still to be drafted and implemented before any changes can, or will, be made to the police scheme pension regulations and software systems. As such, service and tapering will continue on the current basis until such legislation is finalised. Retirements will continue to be calculated under current benefit structures and no pension projections beyond 31 March 2022 will be issued by the Blue Light Administration team. Member Self Service is still available for calculating projections, which will be based on current legislation / benefit structures; we will update when this changes.

    Members with both PPS 1987/NPPS 2006 and CARE scheme service who are due to retire before the implementation of legislation will be given their current scheme benefit options upon retirement. Members seeking details of their remedy choice benefit options at retirement before legislation implementation should contact the individual police force concerned to request details their Immediate Detriment policy.

    XPS are working with the Home Office, HMT, NPCC and our software providers to be able to deliver the remedy outcome as soon as practicably possible and appreciate your patience and understanding at this time. Any further updates will be posted on this page in due course.

    Further details of the consultation response and a Q & A factsheet, prepared by XPS, can be located below.

    What is the McCloud decision and why were the government reforms in 2015 discriminatory?

    In 2015 the government introduced reforms to public service schemes which included a policy of “transitional protection” – this meant that those members closer to retirement would be fully or partially protected from the reforms and were able to stay in their final salary “legacy” scheme as they had shorter time to prepare for the changes.

    In the Court of Appeal cases of McCloud and Sargeant the “transitional protection” element of the reforms was identified as unlawful age discrimination against younger members. Following the ruling, the government confirmed it would take action to address the unlawful discrimination in all affected public service pension schemes, which includes the police pension schemes.

    What is meant by a legacy scheme and a reformed scheme?

    The legacy schemes within the police schemes are the Police Pension Scheme 1987 and the New Police Pension Scheme 2006. The reformed scheme is the CARE Police Pension Scheme 2015.

    What is the Remedy Period?

    The transitional protection identified as discriminatory by the Court of Appeal covered a period of time from 1 April 2015 – 31 March 2022 this is known as the “Remedy Period” i.e. the period of time for which the government must remedy the unlawful discrimination.

    What steps have the government taken to address the discrimination?

    In July 2020, the Government published a public consultation on options to remove the unlawful discrimination. Having considered all responses from the consultation, the government has decided its final approach, which was confirmed on the 4 February 2021. Two key decisions were made by the government to address the unlawful discrimination:

    Decision 1 - The Deferred Choice Underpin – a mechanism to address the unlawful discrimination identified in McCloud.

    Decision 2 - Future Pension Provision – confirmation of future pension accrual following removal of the unlawful discrimination.

    What is the Deferred Choice Underpin and what will future pension provision look like?

    Deferred Choice Underpin: At the point of your retirement, if you are an affected member you will be able to choose to receive legacy pension scheme benefits or benefits of your reformed scheme for the Remedy Period i.e. 1 April 2015 – 31 March 2022; this is known as the Deferred Choice Underpin.

    Future Pension Accrual: From the end of the Remedy Period, i.e. 1 April 2022, if you are an affected member and continue to be in service, you will do so as a member of the reformed CARE scheme, irrespective of your age;

    The government believes the two decisions combined will remove the unlawful discrimination and ensure equality of treatment within public sector pension schemes.

    Am I affected?

    If you meet the following criteria you are in scope of the changes, and you will receive the deferred choice underpin:

    • You were a member, or eligible to be a member of a public service ‘legacy’ scheme on 31 March 2012;
    • You were a member of a public service pension scheme between 1 April 2015 and 31 March 2022; and
    • The two periods above were continuous (or treated as continuous under the scheme regulations, including any qualifying break in service of less than 5 years).

    This is irrespective of whether you have submitted a legal claim or not, or whether you are currently an active, deferred or pensioner member.

    Members who first joined after 31 March 2012 are not affected.

    If you had transitional or tapered protection or were moved to the reformed CARE scheme in 2015 and meet the above criteria you will be offered the deferred choice underpin.

    Please use the flowchart to assess how you will be affected

    How will the deferred choice underpin approach work?

    To address the unlawful discrimination, if you were moved to the reformed CARE pension scheme in 2015 (or later for those who had tapered protection) you will be moved back into your old legacy pension scheme for the whole of your service within the remedy period, i.e. 1 April 2015 – 31 March 2022. However, this cannot happen until the pension scheme regulations have been amended, and our pension administration system has been updated. This is expected to be sometime after October 2023.

    If you are an affected member and when payment of your pension benefit commences, you will receive a choice of which pension scheme benefits you would prefer to take for the remedy period; this is known as a ‘deferred choice’.

    The choice will be between your old legacy pension scheme benefits and your reformed CARE scheme benefits for the period 1 April 2015 – 31 March 2022.

    At the end of the remedy period, i.e. 1 April 2022, if you continue to be in service, and are eligible, you will do so for all your future service from 1 April 2022 as a member of your respective reformed CARE pension scheme introduced in 2015.

    You will keep any service earned within the legacy scheme up to 31 March 2022. The legacy schemes will be closed to future accrual from 1 April 2022.

    Why are members being asked to make a choice between their legacy and reformed CARE pension scheme benefits for the remedy period?

    The government believes it is not fair to simply move all those in scope of the remedy back into their legacy scheme, even though this would remove the unlawful discrimination identified by the Court of Appeal. This is because several scheme members are likely to be better off in the reformed scheme. Therefore, if you are an affected member, the government is providing you with a choice between legacy and reformed scheme benefits in respect of your service during the period 1 April 2015 – 31 March 2022 .

    What are the main differences between legacy and reformed scheme benefits?

    All public sector pension schemes have different arrangements. Broadly, the main changes between legacy and reformed schemes included a change to career-average pension schemes from final salary and an increase in the normal pension age.

    Other notable changes are that the reformed scheme do not provide for double accrual. However, your legacy benefits will continue to increase each year, as a weighted accrual calculation will be applied to compensate for this loss. Additionally, the accrual rate in the reformed scheme is more generous.

    The change to career-average means pensions are calculated on your average salary throughout the rest of your career as opposed to final salary.

    The reformed scheme was designed to make public sector schemes more affordable and sustainable for the future. The move from mostly final salary to career average pension means you accrue your pension at a typically higher rate based on your average salary. Although, some members are better off in legacy schemes, the reformed schemes are more beneficial for others, particularly many low paid members.

    What is the position of members who had “transitional” or “tapered” protection and those moved to the reformed care scheme on 1 April 2015?

    Members with Transitional or Tapered Protection:

    These are members with some protections due to age who were moved across from the legacy scheme into CARE after 1 April 2015.

    Unprotected members who were moved to the reformed CARE scheme on 1 April 2015:

    These are members without any protections due to age, who were moved from the legacy scheme to the reformed CARE pension scheme on 1 April 2015.

    The effect of the McCloud judgement was that tapered protection is discriminatory. Maintaining an age-based system of tapered protection would mean continuing or extending such discrimination.

    Regardless of whether you moved from your legacy scheme into CARE on 1 April 2015 or were protected and moved across later, you will be moved back into your old legacy pension scheme for the whole of your service within the remedy period, i.e. 1 April 2015 – 31 March 2022. You will be offered the deferred choice option at the point your pension benefits become payable; at that point, you will be able to choose between legacy scheme benefits or reformed CARE scheme benefits for the whole of the remedy period (1 April 2015 – 31 March 2022).

    You will not be able to choose a mixture of the two, as was raised during the Government’s consultation process.

    What pension scheme will I be a member of from 1 April 2022?

    From 1 April 2022, if you continue in service you will be eligible to do so as a member of your relevant reformed 2015 pension scheme, regardless of your age. If you were previously covered by ‘transitional or tapered protection’ this will include you.

    The legacy schemes will be closed to future accrual from 1 April 2022.

    You will keep any service earned within your legacy scheme up to 31 March 2022. Any pension benefits earned by you after 1 April 2022 will be within the reformed CARE pension scheme.

    The government’s proposals to introduce the deferred choice underpin WILL ONLY come into effect once the pension scheme legislation governing your pension entitlement have been amended, and our pension administration system has been updated. This is expected to be sometime after October 2023.

    When will the pension changes be implemented and introduced?

    Legislation is necessary to implement a deferred choice underpin in schemes. The Government will introduce new legislation when parliamentary time allows, this is expected to be mid-2021. The new legislation will ensure that the unlawful discriminatory elements relating to the remedy period and the transition to the reformed schemes are removed from the pension scheme rules with effect from 1 April 2022.

    The government has stated that provisions for the deferred choice will be implemented by 1 October 2023 at the latest for all scheme members or earlier where schemes are able to implement change and processes ahead of that date.

    The government’s Consultation response states that the detail of any necessary amendments required to scheme regulations, to implement the policies set out in their response document, will, as appropriate be the subject of further consultation on a scheme-by-scheme basis.

    Until the relevant legislation is in place Administrators must act in accordance with the current legislation governing pension schemes.

    Will these pension changes result in any tax changes for me?

    Most members will see no change to their tax position over the remedy period. For a minority of members, the pension changes will cause their tax position to change, which could result in tax charges for the member, or the member becoming entitled to a reimbursement of tax previously paid.

    In some cases, the pension changes may mean that individuals will have to pay new or higher annual allowance charges, but typically only where their projected pension at retirement has increased. Adjustments in lifetime allowance charges may also be required, where retired members’ accrual changes. Some members may also face changes in their contributions in respect of the remedy period, which may also affect their income tax position.

    Where a member has already retired, a member’s total pension income may also change, and tax will be payable on any increase in pension.

    Do I have to submit a claim?

    No. A deferred choice underpin will apply to all eligible/affected scheme members regardless of whether you have made a legal claim. You do not have to do anything at this stage and do not need to submit a legal claim to benefit from these changes.

    What do I do next?

    You do not have to do anything at this stage, you will be contacted by your pension scheme who will notify you of the changes in due course.

    You will remain in, or be returned to, the old legacy schemes for service between 1 April 2015 – 31 March 2022. At the point your benefits become payable, you will be able to choose to instead receive reformed scheme benefits for that period.

    If you are an affected reformed scheme member and retire before legislative implementation, a choice between benefits will be offered as soon as practicable. For some cases this may need to be after legislative changes are in place. Please see section “What is Immediate Detriment and how does it work?”

    What is the position for those already retired before the implementation of the Deferred Choice Underpin and those due to retire before implementation of the Deferred Choice Underpin?

    If you are an unaffected member and do not fall within the scope of the eligibility requirements you will continue to retire as normal.

    If you are an affected member and have already retired and receiving pension benefits; your pension in payment will be revisited, you will be offered a choice of legacy or reformed scheme benefits as soon as possible after the implementation of the legislative changes needed to remove the unlawful discrimination. Your choice will be retrospective and backdated to the point of your retirement.

    If you are an affected member and about to retire between now and 31 March 2022 and you fall within the scope of “Immediate Detriment” you may be given the option of legacy or reformed scheme benefits upon retirement i.e. you do not have to wait for the implementation of the Deferred Choice Underpin. However, there are limitations on whether you will be offered this option; it will depend on whether your employer has a policy in place to permit such payments. Please see question below “What is Immediate Detriment and how it works”.

    What is Immediate Detriment and how does it work?

    Immediate Detriment is the process upon which members who are due to retire before October 2023 with legacy and reformed scheme benefits may request from their employer to have their choice of taking all legacy scheme benefits for the remedy period. Immediate Detriment applies to members: where the relevant Force has an “Immediate Detriment” policy in place; and the member has formally terminated their office of employment, and confirmed that they are due to/have formally retired. A number of issues remain outstanding in connection with Immediate Detriment, specifically regarding taxation issues, which means that cases will need to be reviewed on a case by case basis. Whether or not Immediate Detriment is applied all cases where benefits have been calculated and paid will need to be revisited once the Government has formally amended the legislation to address the unlawful discrimination.

    Immediate Detriment may apply to you if your employer has an Immediate Detriment policy in place and you satisfy the following conditions;

    • You were in service on or before 31 March 2012 and on or after 1 April 2015, which includes a qualifying break in service of less than 5 years; and
    • You did not benefit from full transitional protection; and
    • You were moved into the 2015 reformed scheme on or after 1 April 2015 and you:
      • became eligible to retire with an ordinary pension and want to have all your benefits paid from your legacy scheme (i.e. you do not accept deferred 2015 [reformed] scheme benefits); OR
      • do not qualify for lower-tier (and therefore higher tier) ill-health pension under the single pot IllHealth (IHR) arrangement BUT would do so under the IHR arrangements in your legacy scheme.

    If you are a scheme member that falls within either of the two categories (a) or (b) above, you can potentially have your pension calculated and put into payment in accordance with the HO guidance and elect to take all benefits from your legacy scheme.

    Immediate Detriment does not apply to members who have already retired and are in receipt of their pension payments.

    Will I still be tapered across into the 2015 CARE scheme?

    Yes. As the current regulations have not changed and remain in force we must continue to apply them. This means (until such point that we are instructed otherwise) we must continue to apply tapering and will move you into the 2015 scheme if your tapered protection ends before the pension scheme regulations are updated

    When will it all be resolved and when will I have my figures for retiring with all legacy service?

    At this stage, the remedy to rectify the unlawful discrimination is at proposal stage. In order to implement the remedy, the Government need to amend the legislation which governs your pension benefits. At the moment we only have the Government response to the remedy consultation document, which states that further technical decisions need to be made, and the Government need to introduce and pass primary and secondary legislation to amend your governing pension scheme rules to introduce the Deferred Choice Underpin. Therefore, administrators are unable to provide projected pension figures which include the Deferred Choice Underpin, i.e. the remedy. Until this legislation is implemented, the Pensions Unit is unable to provide any estimates which include the remedy proposals. We understand that the Government hopes to lay legislation to amend the current pension scheme rules by mid-2021, with the expectation that the Deferred Choice Underpin remedy will be implemented from October 2023. In the meantime, until this process is complete we can only continue to act in accordance with the current legislation governing your pension benefits. We do not expect to be in a position to provide estimates which include the remedy before October 2023. Member Self Service remains available for estimates beyond the remedy period. However, projections DO NOT take into account remedy and will be based on your current benefit structure and scheme legislation.

    I couldn’t transfer in my previous benefits into the 2015 scheme due to time limits. Can I now look to transfer this into the legacy scheme?

    We do not expect this to be possible, however, further advice is being sought from the Home Office. Due to the timing of the remedy implementation period affected members will revert to the legacy scheme for the period 01/04/2015 to 31/03/2022 but moved back to the reformed scheme from 01/04/2022. As revised pension scheme regulations will not have been laid by 01/04/2022 this process will be applied retrospectively and as such not provide any time for a transfer to be accepted in the legacy scheme. We are unsure if a new one year transfer window will be made available in the reformed scheme for members who have been subject to remedy and await further confirmation on this.

    What’s the best option to take?

    Neither XPS nor your employer are qualified and registered financial advisors and as such are not able to advise on the best option available to members. You may wish to discuss the options available to you with an independent financial adviser who will be able to base their advice on your own individual circumstances. Whilst the government has agreed to transfer all affected members back to their legacy final salary scheme for the period 1 April 2015 - 31 March 2022 it has intentionally given members the choice at the point of retirement to choose between legacy final salary benefits or reformed CARE scheme benefits for the remedy period as this will help you to make more of an informed choice upon your retirement.

    Can I have my previous estimate / options redone on new terms now?

    No. Before we can produce benefit estimates/Annual Benefit Statements which detail the Deferred Choice Underpin, further technical policy decisions need to be made and the necessary legislation needs to be passed to amend the existing legislation to give effect to the McCloud Judgement. Therefore, until such time benefit estimates and Annual Benefit Statements will be based on the current legislation. If you are in the process of leaving your employment and have not been given the option of your benefits under terms of Immediate Detriment this may be because your employer is currently unable to offer this option to you. Although your benefits will be paid under your current terms they will be revisited as part of the remedy process and revised options will be provided to you and any changes to your pension will be made retrospectively.

    How will contributions be amended when reverted back to legacy scheme?

    The Government has made it clear that all costs associated with the Deferred Choice Underpin are member costs and will involve adjustments to member contributions. The Government have said they will adopt a two-stage approach to contributions. The first stage will be when members are moved to their legacy final salary scheme for the period 1 April 2015 – 31 March 2022; where a member has paid higher contributions in respect of any period than are due under the legacy final salary scheme, the difference will be paid to the member. Where a member has paid lower contributions than those due, they will owe the difference to the scheme. The second stage is at the point of retirement when a member has to decide between legacy final salary and reformed CARE benefits for the period 1 April 2015 – 31 March 2022, at this stage there will be a final check to establish if a rebalancing payment should be paid for over or under payments. We await further details from the Government as to how this will work in practice.

    How are benefits paid after remedy? Is it legacy paid and 2015 either deferred or reduced?

    If you are an affected member, after remedy you will hold separate benefits in both the legacy scheme and the reformed scheme. There is no change to the date from which your legacy scheme benefits can be paid. Therefore, if you were a PPS 1987 scheme member and have accrued 30 years scheme membership (even though your last 3 years may have been in the reformed scheme) you can still draw your legacy benefits from that 30 year date. Your reformed (CARE) scheme benefits can be paid from age 55 at the earliest but will be subject to an actuarial reduction if you retire before age 60. If you retire before age 55 then your reformed scheme benefits will be calculated but payment will be deferred until your state pension age. If you hold NPPS 2006 legacy benefits you can retire with an immediate pension from both schemes from age 55 but an actuarial reduction will be applied to your reformed scheme benefits due to early payment

    Am I still able to retire on achieving 30 years service at age 50 if this is after 2022?

    If you are an affected member, after remedy implementation you will hold separate benefits in both the legacy scheme and the reformed scheme. There is no change to the date from which your legacy scheme benefits can be paid. Therefore, if you were a PPS 1987 scheme member and have accrued 30 years scheme membership (even though your last 3 years may have been in the reformed scheme) you can still draw your legacy benefits from that 30 year date. Your reformed scheme benefits can be paid from age 55 but will be subject to an actuarial reduction if you retire before age 60. If you retire before age 55 then your reformed scheme benefits will be calculated but payment will be deferred until your state pension age. If you hold NPPS 2006 legacy benefits you can retire with an immediate pension from both schemes from age 55 but an actuarial reduction will be applied to your reformed scheme benefits due to early payment

    Will changes to contributions be sorted before I retire?

    Yes. When you are moved back into your legacy scheme your employer will determine if you owe (or are owed) additional contributions. Your employer will calculate the amount of contributions that need to be paid and provide you with options regarding repayment. Currently the Home Office is in discussion with the Treasury regarding tax relief / interest payments. As soon as we receive further details we will provide further information.

    How does the announcement affect me? I have 25 years service before 2022 and am now in the CARE scheme.

    You will be returned to your old legacy final salary scheme for your service between 1 April 2015 - 31 March 2022. From 1 April 2022 you will revert to membership of the reformed CARE arrangement for future accrual. When your benefits become payable you will receive a choice of whether you would receive the benefits of your reformed CARE scheme or legacy final salary scheme for the period 1 April 2015 - 31 March 2022. You do not have to submit a claim, this will automatically happen through your employer and administrator working together.

    If I retire before remedy do I lose out?

    No. If you are an affected member and fall within the scope of the proposals ie you were in service as a member of a public service pension scheme on 31 March 2012 and remained in service on 1 April 2015 and you have retired or you are planning to retire before October 2023 the deferred choice underpin will be offered to you. If possible, the option of reverting your reformed scheme benefits back into your legacy scheme will be made available to you at retirement under the Immediate Detriment proposals (see details above). If you have already retired it is not possible to offer you the Immediate Detriment option, however, we will revisit your benefits as soon as we are able to and provide you with these options. Please note that if Immediate Detriment cannot be offered we will need to wait until legislative changes are in place before we can revisit your benefits and provide the options to you.

    Can I opt out of the new scheme in 2022?

    Yes. You can opt out of the 2015 reformed CARE scheme at any time by completing an 'opt out' form, available on our member website, and returning it to your payroll department. If you do wish to opt out please ensure you read the document in full as this explains the rules about possible re-entry and details the benefits you will be giving up. Please note that your election to opt out cannot be backdated and your scheme membership will cease from the next available pay date following receipt of your election by your payroll department. If you do elect to opt out, any benefits that you have built up in either the legacy scheme or the reformed scheme will be calculated and deferred with the payment dates of your benefits being linked to each scheme. If you subsequently elect to re-join, entry will be subject to a medical examination to establish whether you will be eligible for ill health benefits. You will be responsible for paying any costs for this medical examination. You may also lose the right to re-link your legacy scheme benefits to your final salary. Further details on opting out of the 2015 Scheme can be found in the relevant member scheme guides.