The cost of supporting the economy through the coronavirus pandemic is expected to cost the government £280 billion this year. Set against this, the estimated £2.5 billion a year, £17 billion in total, estimated cost of remedying the unlawful age discrimination in Public Service Pension Schemes which occurred as a result of recent scheme reform may seem like a drop in the ocean. But it’s essential that the Government gets this remedy right so that the retirement outcomes of our public servants aren’t compromised and in order that the total bill doesn’t escalate out of control due to further litigation.
Under the so-called McCloud remedy, proposals are being taken forward which will give the circa 3 million individuals in scope the choice between legacy scheme, normally final salary, or reformed scheme career average, benefits for the period 1st April2015 to 31st March 2022. Individuals will be asked to make this choice at the point of retirement, meaning it will be based on known factors.
Central to this is the clear requirement for the pay and service data held by schemes to be accurate and provided to schemes on time. Annual benefit statements (ABS) and pension savings statements (PSS) setting out the alternative entitlements and benefit growth under either scheme are likely to be of limited help if the starting point for that information is inaccurate data.
And here’s the rub. As many advisers will know from experience, data quality is a persistent issue in many public service pension schemes. This is due in large part to the sheer number of participating employers and the failure of many to understand their responsibilities. In November 2018, in its publication Public Service Pension Schemes: An essential guide to issuing annual benefit statements, The Pensions Regulator reported that “on the part of employers, there was [..] a lack of understanding of their role and their obligations to engage appropriately with schemes and provide timely, complete and accurate data to scheme managers”.
While the picture may be improving, there’s still some way to go before members are always able to confidently rely on the information provided to them. In response to a freedom of information request made by Royal London, the Scottish Public Pensions Agency confirmed that some 79 per cent of standard PSS for 18/19 were issued to NHS Scotland members after the statutory deadline and more than 8 per cent were withdrawn by the scheme following revision. Another example are the errors in ABS and PSS related to the omission of benefits built up under voluntary “Added Years” contributions for certain individuals in the NHS scheme in England and Wales which are only now being fixed. But the data issues aren’t limited to the NHS schemes alone. In October 2020, Schools Week reported that two in five teachers who checked their ABS had found inaccuracies.
So there are existing challenges which the administrative demands related to the McCloud remedy could exacerbate given the competing demands. As the response from NHS Employers to the McCloud proposals notes
“Employers are particularly concerned about having to deliver this additional work at an already very difficult time, given the current Covid-19 pandemic response and the uncertainty of what this may entail over the coming years”.
So members would do well not to leave things to chance. They have a part to play in ensuring they make the decision that’s right for them and are equipped to deal with any tax implications falling out of that decision. This means keeping copies of tax returns, P60s and carry forward calculations/ pre- April 2015 pension input history until their position is fully resolved at retirement. It also means checking benefit statements to ensure pay and service details are complete and accurate and raising any queries with their employer if need be. Employer mergers or closures and future changes of payroll provider are all factors which could make it difficult to resolve service history queries many years into the future. A Teacher Tapp poll in 2020 revealed that 38 per cent of teachers have never checked that their pension is correct. Don’t let your client be one of them.