April and May 2024 Pensions Buletin
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Dear Members,
Please click below to read the Pensions Bulletin for April and May.
Posted on:
Dear Members,
Please click below to read the Pensions Bulletin for April and May.
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Pensions Bulletin
Judicial Review
I have advised previously that the GMB and other Trade Unions are taking the government to court seeking a return of the pensions fund surpluses that the government utilised to pay for the McCloud remedy.
The hearing was held in the Court of Appeal between 20th and 22nd February. Our solicitors have advised that they feel it went reasonably well. Judgment is reserved and a likely timeframe of 1-2 months before the final judgement is realistic. I will advise further as soon as I am able.
Changes to the NHS Pension Scheme
The Department of Health & Social Care have published their response to the consultation on proposed changes to the NHS Pension Scheme from 1 April 2024. The consultation outcome is available to read online at:
In summary, the response confirms:
The Local Government Pension Scheme Rule of 85
2024 Spring Budget |
There was not much in last week’s budget that concerned. However, the 2% reduction in National Insurance contributions will reduce the cost savings of those employers operating salary sacrifice for their employees’ pensions. On the issue of value for Defined Contribution (DC) scheme members, the budget proposed:
The FCA will consult on this in spring, with the aim of enforcing the new disclosures by 2027. Meanwhile, the Government remains committed to its long-term goal of exploring a lifetime Defined Contribution provider model (see below) * and it also confirmed its commitment to maintaining the triple lock on the State Pension. |
*A proposed ‘lifetime provider’ or ‘pot for life’ model, where employees could compel their employer to pay into a pension of their choice, rather than the workplace pension that their employer offers. This could end the situation where people accumulate lots of pension pots over their lifetime and lose track of them but
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Pensions Bulletin
TUC Pensions Conference: 13th March 2024
I remind you that the Annual TUC Pensions Conference is being held on Wednesday 13th March 2024 at Congress House, London
The conference will look at the pension policy challenges facing an incoming government. Keynote speakers include shadow work and pensions secretary Liz Kendall and Chair of the National Infrastructure Commission Sir John Armitt on the investments needed to transform the UK economy.
There will also be a range of workshops and panel discussions covering the state pension, auto-enrolment, ESG investing, trustee diversity and inclusion, pension scheme communications and more.
Register for the event here - TUC Pensions Conference 2024: pensions under the next government | TUC
Trustee Training
Are you a trustee of a Defined Contribution Pension Fund?. Via our partners at First Actuarial we can provide some training free of charge.
The courses will help you comply with legislation and explain complex issues in simple ways and there will be plenty of opportunity to discuss issues and experiences with other trustees.
There are currently places available on these sessions:
● Introduction to trusteeship | Online interactive session | Thursday 7 March at 9.30am and Wednesday 12 June at 9.30am
● Investment training for trustees | In-person in Leeds | Tuesday 12 March at 9.30am
● Investment training for trustees | Online interactive session | Wednesday 14 March at 9.30am.
Find out more by following the above links and book your place today. Places are limited
Local Government Pension Scheme
Sharia Law: The scheme has received a report on the Sharia compliance of the LGPS from an Islamic finance expert, Mufti Faraz Adam. The report examines the issue from the starting point that the LGPS is an extension of the employer/employee contract and concludes that as a part of the contractual arrangement between employer and employees, Muslim employees can continue to contribute to, and benefit from the benefits offered by the LGPS.
You can get further details here LGPC bulletin 246 - January 2024 (lgpslibrary.org)
Employee Contribution Bands
LGPS Employee Contribution Bands are changing. The Table below sets out the new bands. These are calculated by increasing the 2023/24 employee contribution bands by the September 2023 C P I figure of 6.7% and then rounding down to the nearest £100.
Band | Actual pensionable pay for an employment | Main section contribution rate for that employment (%) | 50/50 Section contribution rate for that employment (%) |
1 | Up to £17,600 | 5.50 | 2.75 |
2 | £17,601 to £27,600 | 5.80 | 2.90 |
3 | £27,601 to £44,900 | 6.50 | 3.25 |
4 | £44,901 to £56,800 | 6.80 | 3.40 |
5 | £56,801 to £79,700 | 8.50 | 4.25 |
6 | £79,701 to £112,900 | 9.90 | 4.95 |
7 | £112,901 to £133,100 | 10.50 | 5.25 |
8 | £133,101 to £199,700 | 11.40 | 5.70 |
9 | £199,701 or more | 12.50 | 6.25 |
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Pensions Bulletin: Happy New Year; Welcome to 2024
A lot happened in the Pensions World in 2023; a brief round up is below
The Autumn Statement: On 22 November 2023 the Chancellor of the Exchequer delivered his Autumn Statement which contained several pension announcements.
A proposed ‘lifetime provider’ or ‘pot for life’ model, where employees could compel their employer to pay into a pension of their choice, rather than the workplace pension that their employer offers. This could end the situation where people accumulate lots of pension pots over their lifetime and lose track of them but
The Triple Lock will be maintained with pensioners receiving an 8.5% increase to their State Pension from £203.85 to £221.20 in April 2024. The (old) basic State Pension, which applies to those who reached State Pension age before April 2016, will rise from £156.20 to £169.50 per week.
Other items in the Autumn Statement include
Cost of living crisis hits pension savings. A report by the Centre for Ageing Better has highlighted that millions of pensioners are struggling to get by, with one in five pension-age adults living in relative poverty. More than a million pensioners say they have no savings and UK adults aged 60–64 have the highest rate of relative poverty in the country.
The poorest 20% receive an annual income below the minimum amount needed to live on. This issue affects not only pensioners, but also those saving for retirement now as many simply cannot afford to pay as much into their pensions.
Also, around a third of the poorest workers have no pension provision beyond the State Pension, and some do not meet the threshold for auto-enrolment, for example due to low paid part time work.
The Centre for Ageing Better has urged the Government to establish a Commissioner for Older People and Ageing, to protect and plan for our ageing population and ensure dignity in retirement for all.
Auto-enrolment reform on the horizon? Since 2012, employers have been required to automatically enrol eligible employees into a workplace pension. To be eligible, employees must be aged between 22 and State Pension age and earn more than £10,000 pa. Contributions are made on earnings between £6,240 and £50,270. This initiative has been extremely successful with total membership in Defined Contribution (DC) pension schemes increasing from 2.1m in 2011 to 21m in 2019. The Department for Work and Pensions (DWP) has reported that scheme participation has remained steady at 88% from 2019 to 2022.
Despite the success of auto-enrolment, the GMB continue to campaign to improve it and a bill passed by Parliament in September 2023 allows the Government to reduce the minimum age for auto-enrolment from 22 to 18 and abolish the lower £6,240 earnings threshold before contributions are made.
We welcome both these initiatives but continue to campaign for the minimum employer contribution (currently 3%) to be increased to at least match the employee contribution and preferably to 6%.
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What is “The McCloud Judgement” and what does it all mean?
In 2015 the Government introduced new reformed schemes across the Public Sector. All public sector pensions scheme members had to move into these new schemes unless they were "protected".
There was no choice about this matter. You simply switched to the 2015 Scheme it you did not satisfy the protection requirements.
What are the protection arrangements?
There are two types of protection. Full Protection and Tapered Protection.
Full Protection applies if you were within 10 years of your Normal Pension Age as at 1 April 2012. If so you are entitled to remain in your current (pre 2015 section) scheme indefinitely.
Tapered Protection applies if you were within 10 years and 13 ½ years of your Normal Pension Age as at 1 April 2012. If so this allows you to remain in the pre 2015 section of your scheme until your Tapering Protection ends (i.e. at any point between the 1 April 2015 and 1 April 2022).
The McCloud Judgement
This protection has been found to be age discriminatory and accordingly public service schemes have been ordered to address this discrimination and offer members a choice over which scheme they wish to be in for the duration of the remedy period.
What is the remedy period?
The remedy period is all service between the 1 April 2015 and 31 March 2022. This means that if you were required to move to the 2015 Scheme because you did not have protection then, at the point of your retirement, you will be able to choose to have all of your service in the remedy period calculated on the basis of either your pre-2015 pensions scheme benefits or your post-2015 pensions scheme benefits.
Do I need to submit a legal claim or do anything?
No, you will be offered a choice automatically and you do not need to submit any claim.
When will I be given a choice?
You will be given a choice at the point of your retirement or earlier in certain circumstances.
What about if I’m retiring or have retired? Will I still get a choice?
Yes, you will be offered a choice as soon as possible.
If you are in receipt of a pension your award will retrospectively be amended and backdated to your retirement date should you make a choice which increases your entitlement.
This also applies to retirement on ill-health grounds, spouses pensions, children’s pensions, survivor lump sum payments, transfer values, pension on divorce cases etc. In short, all awards paid over the duration of the remedy period will need to be re-assessed and a choice offered where the member satisfies the choice eligibility conditions.
What happens if I don’t make a choice?
The default position is to assume you are in your pre-2015 (your “legacy scheme”) for the period 1 April 2015 to the 31 March 2022 unless you specifically choose otherwise.
What exactly happens from 1 April 2022?
All members will earn benefits in the 2015 Scheme from the 1 April 2022. Even protected members. It will no longer be possible to build up any more service in the pre-2015 schemes.
What happens to my benefits in the pre-2015 schemes?
They are fully protected.
Am I going to in effect have two NHS Pensions then?
No, you will have one pension made up of two sections (the pre and post 2015 sections) added together
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The Chancellor’s Autumn Statement
The Government Response to the Local Government Pension Scheme Consultation
Last Wednesday the Chancellor of the Exchequer made his Autumn statement which included a number of pensions related announcements as below.
Alongside the Chancellor’s Autumn Statement, the response to ‘The next steps on investments for the LGPS’ consultation was published on November 22nd 2023.
The consultation largely adopts the measures the government originally consulted on, with the main points from the consultation (in paragraph 9) set out as follows:
GMB is extremely disappointed that the government response takes no account whatsoever of the responses to the consultation which overwhelmingly opposed the drift towards greater pooling size, criticised increased management fees, spoke against investment in government policy outwith the fiduciary duty and identified a dangerous lack of rationale for investing in private equity.
So much for a listening government!
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Pensions Can Be Confusing – Here are Some Simple Answers to Some Simple Questions
Some people can find Pensions confusing; they have a language of their own and there are countless systems and methods of payment all of which need detailed consideration. In order to help a very useful Pension FAQs has just been made public by the House of Commons library and it can be accessed here free of charge.
The questions GMB most often receives are answered below.
What is a pension?
A Pension is a regular payment made during a person’s retirement from a fund to which that person and/or their employer has contributed to during their working life. This is normally referred to as an occupational or workplace pension.
A Pension is also paid by the state to people of or above the official retirement age and to some widows and disabled people. This is normally referred to as the State Pension.
How do I get one?
Occupational: Your employer is obliged to provide a pension scheme that you and they contribute to. You can opt out of it if you wish but GMB strongly advises you not to. If your employer does not run its own scheme it will automatically enrol you into the national NEST.
State: You can claim the new State Pension if you are:
The earliest you can get the new State Pension is when you reach State Pension Age. The level of State Pension is determined by your National Insurance contributions. You will usually need at least 10 qualifying years on your National Insurance record to get any State Pension (they do not have to be 10 qualifying years in a row). You will need 35 qualifying years to get the new full State Pension.
Why does it matter?
How will you pay your bills and expenses when you have stopped working? Most people will not win the lottery, they will be too old or too ill to continue working and they will not be able to rely on an inheritance or a part time job. So you need to put away money whilst you are working to supplement the state pension you may receive. If you do not, you will likely live out your days in relative poverty.
As Pensions are a workplace issue, it is important that you campaign in the workplace to secure improvements to your pension fund as often as possible to achieve the dignity in retirement that you deserve.
What does it Pay?
Occupational: How long is a piece of string? Some workplace pensions give an amount based on salary and length of service. Other workplaces facilitate investments into pension funds for you to build up a pension pot and buy an annuity (or other financial product) at retirement. Whichever it is GMB always recommends that you join a pension scheme, stay in it till you retire and campaign to improve it via your Trade Union throughout your working life.
State: The full new state Pension is £203.85 per week. It increases in April each year by whichever is the highest of the previous September:
How much does it cost?
Occupational: Employer and Employee contributions are determined by scheme rules which can take into account all factors including e.g. stock market returns, profitability, retirement age, level of benefits, affordability etc
State: If you are employed you pay Class 1 National Insurance Contributions. The rates for most people for the tax year 2023 to 2024 are:
Your Pay | NI Rate |
£242 - £967 per week | 12% |
Over £967 per week | 2% |
You pay less if:
Full details about the New state pension can be found at The new State Pension: What you'll get - GOV.UK (www.gov.uk)
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McCloud – Its Our Money and We Want It Back
I remind you that the GMB has not given up the fight in respect of returning to the Public Sector Pension funds their surpluses that the government used to fund the court case that it lost. As you will be aware the transition to the pre 2015 Pension schemes in the Public Sector was found to be age discriminatory and the government used the excess amounts in the funds – which were to be used to fund benefit improvements – to pay for the required remedy.
Along with other Trade Unions we are taking the government to court to have the monies returned and the case will be heard in December 2023/January 2024. I shall keep you advised of developments. If you wish for a more detailed account or want to get involved in campaigning on the issue please contact george.georgiou@gmb.org.uk
2024 Pension Increases Still in Doubt
State Pensions are increased under the terms of the triple lock (the higher of earnings increases, CPI or 2.5%) and the Office for National Statistics (ONS) has published inflation figures for the 12 months to September 2023:
Consumer Prices Index (CPI) increased by 6.7%
Retail Prices Index (RPI) increased by 8.9%.
The ONS has also published the latest earnings increase figures. For the three months to July 2023, average weekly earnings increased by 8.5% compared to the equivalent figure of 12 months ago.
Were the Government to implement the triple lock in full, an increase of 8.5% would be applied to the basic and single-tier State Pensions. However, according to the Financial Times, the Government is considering whether to exclude bonuses from the average earnings data. This would give a figure of 7.8% instead.
We await November's Autumn Statement for news on whether the triple lock policy will be fully maintained.
The Gender Pensions Gap – a (very) quick round up
Women receive smaller pension than men! That may not surprise you given that, overwhelmingly, pensions are derived from pay and male pay is on average higher than female pay. What may surprise you is the size of the gap especially in both the Public and Private Sectors.
Sector | Gender Pensions Gap |
Civil Service Pension Scheme | 47% |
NHS | 63% |
Teachers Pension Scheme |
29% |
Local Government | 49% |
Private Sector* | 55% |
*On average women’s pension pots are less than half the size of men’s at retirement
Why is it an issue? What causes it?
Women are more likely to face poverty in retirement than men and 92% of women retire with a small pot (below £30k).
The main causes of the gap are
Knowing the causes means that we can begin to address (some) collective solutions
And there are (some) individual solutions too
The GMB will never accept this inequity, we do not accept that half the population should suffer inequity just because of their gender or life choices.
We will campaign in the workplace, with Pension Providers and in parliament for the above.
Change is needed: Be part of the change!
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Pensions Bulletin
McCloud
The Cabinet Office has consulted on the draft regulations needed for the Public Sector Pension Schemes to implement the second phase of the McCloud Remedy.
Most responses agreed to the proposed regulatory and legislative changes that will give affected members a choice of their benefits from 1 April 2015 to 31 March 2022. Members will be able to select either legacy (Pre 2015*) or reformed (After 2015) benefits for this period.
The choice will be given when benefits become payable or, for those with remedy period benefits in payment before 1 October 2023, as soon as is practical once the legislation is in place.
Responses also emphasised ensuring members had sufficient information to understand what the remedy meant, especially in relation to making their choice.
The Cabinet Office will therefore continue with the proposed regulations. These are expected to be laid in Parliament early in September to become effective from 1 October 2023.
*2014 in Local Government
The UK State Pension Triple Lock
The UK state pension triple lock is a policy that guarantees the state pension will increase annually by the highest of the following three factors:
Earnings Growth: The state pension rises along with the average increase in wages across the UK.
Price Inflation (CPI): It also adjusts based on the Consumer Price Index, reflecting the cost of living and inflation.
Minimum Increase of 2.5%: Even if the above factors are lower, the state pension will increase by at least 2.5% per year.
This policy aims to provide pensioners with a secure and predictable increase in their state pension, maintaining their purchasing power over time.
The has been criticised because during periods of low wage growth pensions may increase higher than earnings: however GMB thinks that is a good thing as it will help restore the lost purchasing power of UK state Pensions which is one of the lowest in the OECD.
Critics have described the policy as expensive but as far as GMB is concerned its worth every penny, not only to ensure dignity in retirement but also to ensure money circulates in local economies.
Climate Change
Since October 2021, trustees of schemes with assets of £5bn or more have had to comply with climate change governance and reporting requirements, which include producing climate scenario analysis for annual climate reports.
In October 2022, this requirement was extended to include schemes with assets of £1bn or more.
Recent research has criticised some of this climate scenario analysis, suggesting that many models used in financial services significantly underestimate climate change risk.
The Pensions Regulator (TPR) has noted that scientific consensus suggests an increase in global temperatures of 4°C would result in catastrophic biodiversity loss and the collapse of the insurance sector.
While TPR maintains that trustees do not need to be climate experts, it suggests that they should:
The GMB adds to this list
*The Just transition is a framework developed by the trade union to encompass the range of interventions needed to ensure workers’ rights and livelihoods when shifting to sustainable production.
The Intergovernmental Panel on Climate Change (IPCC) defines just transition as "A set of principles, processes and practices that aim to ensure that no people, workers, places, sectors, countries or regions are left behind in the transition from a high carbon to a low carbon economy”.
We ask all our trustees to be mindful of the above.
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Pensions Bulletin
Consultation: The Local Government Pension Scheme (England and Wales): Next steps on investments
Many of you may have seen the recent announcement about the West Midlands pension fund making its first investment in a private company through an innovative £25 million fund. The West Midlands Pension Fund has backed the Birmingham-based healthcare company Medmin, which is providing private elective surgery for people with savings and has raised £1.45 million in total. The pension fund has teamed up with the West Midlands Combined Authority to create the £25 million fund and the pair are jointly investing £250,000 in Medmin via their fund manager Midven. The new fund, called the West Midlands Co-Investment Fund, was set up in March and will invest up to £1 million a time in companies based in the region over the next ten years.
The deal comes days after Chancellor Jeremy Hunt announced plans to release as much as £75 billion from UK pension plans for investment into unlisted companies to drive economic growth. As part of the reforms he is consulting on a proposal to set local government schemes an “ambition” of doubling their existing investments in private equity to 10 per cent.
Such cooperations between Local Government Pension Funds and private Bodies are not so unusual. For example, in 2012 Manchester City Council struck a ground-breaking deal in 2012 with the Greater Manchester Pension Fund (GMPF) to build family homes for market rent and sale.
The council provided the land and GMPF funded the house building. This was the first time a council pension scheme had used its finances to support a key council aim of building homes and a string of other council pension funds – including Lancashire, Islington and the West Midlands – followed Manchester’s lead.
However, whilst new regulations (introduced in 2016) allow councils to invest more of their pension funds in partnership vehicles (which are traditionally used to deliver infrastructure projects) pension fund trustees still have to make sure their investments generate good returns (although they can accept lower rates for ESG projects that are consistent with their overall investment strategy).
We should bear in mind though that it is the failure of government housing policy rather than potential pension finance, which is holding back affordable housing schemes. Also, social landlords can borrow money at better rates than from pension funds e.g. through banks or bonds and pension funds in any case may prefer to seek greater returns elsewhere. So pension fund investment into such capital scheme is not the panacea it is painted out to be and has not been universally adopted for these reasons.
Further, although we could ask Trustees to support the policy, Pension Funds remain autonomous and are subject to much regulation including those that relate to transparency, openness and accountability as well as compliance with the fiduciary duty to protect members assets and seek returns on investments in the interest of pension fund (and GMB members). Any such investments would need to bear this in mind.
Jeremy Hunt speech also expressed a desire to release more monies from UK pension schemes to drive economic growth following the former Chancellor George Osborne who introduced a change to Pension Fund regulations to allow them to invest in government infrastructure in 2015.
At the time we welcomed the additional freedoms but we reminded Trustees that, as stated, Pension fund investments remain guided by returns on investments (RoI) rather than a desire to fund government infrastructure which often offered low returns over a longer term despite their security.
The latest proposals are more worrying as the proposed carrot and stick approach simply seems to be a way to use Local Government Pension Scheme funds to fund government policy - the levelling up agenda in particular - without regard for the funds fiduciary duties nor the regulations that demand transparency and accountability. As they stand, we believe they pose a threat to the democratic running of funds and to members pension assets.
Finally the Chancellor is also consulting on a proposal to set local government schemes an “ambition” of doubling their existing investments in private equity to 10 per cent. The short answer is NO! Not unless you show us the evidence that this guarantees a return on our investment.
Pension funds are rightly prudent and cautious with their members monies, we do not follow whims, investors in Thames Water will tell you why!
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Pensions Bulletin
Changes to the Annual Allowance (AA) and Lifetime Allowance (LTA)
In March the Chancellor of the Exchequer announced changes to the above; Abolishing the LTA means that you can now put as much money as you like into your pension fund over the course of your working life without it being liable to tax (the previous limit was £1,073,100). Although this seems a high figure an increasing number of (generally higher paid and long serving) workers were being caught out by it and this incentivised them to either leave the service or retire earlier. This especially impacted on higher paid NHS workers (e.g. Doctors and Consultants) and Local Government Workers (Chief Executives) who often left their employment as a consequence. However, given the small number of people involved this has been described as a giveaway to the rich.
The second move was to increase the AA (the amount you can put into your pension fund tax free each year) from £40,000 to £60,000.
Although the LTA has been abolished the limit on how much you can take from your pension pot as a tax-free lump sum remains the same. Previously it was 25% of the £1,073,100 LTA. This will now be limited to £268,275.
Plug Your State Pension Gap
Under the new State Pension system introduced in April 2016 one typically needs a 35yr National Insurance contribution to qualify for the full state pension (currently £203.85 per week in the new system). Deductions are made for any missing years in your record, but you can remedy the gaps* by paying the missing amounts. Under normal rules it is only possible to plug gaps in your NI Record up to 6 years after the year in question. However, under a special government scheme that expires in April 2025, you can fill them in for any year from 2006.
Bearing in mind that one year’s NI contributions (approximately £825) adds an extra 1/35th to your state pension (approximately £303 p.a.) it is certainly worth considering filling any gaps.
You can check your state pension forecast at Check your State Pension forecast - GOV.UK (www.gov.uk)
* Gaps can be caused by for example career breaks (for childcare etc), working abroad or earning a low income
Climate Change
As climate change intensifies investors are paying increasing attention to the environmental, social and governance criteria of pension funds and seeking to make pension fund investment a force for good. The business case for switching is straightforward especially as climate change creates huge financial risk.
The Gender Pensions Gap
The income gap between men and women in retirement varies in each sector; it is between 32% and 44% in the private sector and between 29% and 63% in the 4 big public sector schemes (Civil Service, NHS, Teachers and Local Government). This is unacceptably high and represents an average shortfall of over £7,000 in annual pension income for women, impacting on women’s finances, quality of life and health.
Pensions are overwhelmingly a derivative of pay making this a Trade Union issue. So along with other Trade Unions the GMB is campaigning to:
We will never stop campaigning on this issue!
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