Consultation outcome

Government response to annual revaluation date change in the Local Government Pension Scheme (LGPS)

Updated 9 March 2023

The Department for Levelling up, Housing and Communities (DLUHC) launched a consultation on 10 February 2023. This consultation lasted for a duration of 2 weeks and closed on 24 February 2023. The Department consulted on:

1. Changing the annual revaluation date in the Local Government Pension Scheme (LGPS) from 1 April to 6 April; and
2. Whether the draft regulations give effect to the intended policy aims.

The consultation received a total of 44 responses through the online platform, Citizen Space, and through email. Though responses were predominantly from the administering authorities of local government pension funds, there were also responses from:

• individuals
• a trade union, Association of Local Authority Chief Executives (ALACE)
• the Local Government Association (LGA)
• three software suppliers
• pension consulting services

The department has carefully considered the responses to the consultation, which are summarised in the following chapters along with details of the resulting changes to the Regulations.

1. Policy background

The consultation sought views on moving the annual revaluation date in the LGPS from 1 April to 6 April. This is due to high CPI in September 2022 (at 10.1%), which is expected to be used for the LGPS revaluation for the 2022-23 scheme year.

This figure is markedly higher than CPI in September 2021, used for the HMRC uplift, which was 3.1%. As a result, members would have significantly higher total growth in pension for tax purposes.

Without changes to scheme regulations, it is expected that there will be a significant increase in the number of LGPS members breaching the annual allowance threshold of £40,000, and potentially incurring a tax charge.

Changing scheme regulations to move the revaluation date from 1 April to 6 April means that inflation will be reflected in the value of the pension after HMRC assess the value of an LGPS pension for the purposes of annual allowance in tax year 2022/23.

Thus, by taking revaluation out of scope of the annual allowance calculation for the 2022/23 tax year, we aim to reduce the number of members receiving an annual allowance charge for this year.

2. Policy aims of the regulation changes

Draft regulations amending the LGPS Regulations 2013 were published alongside the consultation and consultees were asked whether they delivered the stated policy aims, which are listed below.

The main policy aim is to clarify that the revaluation date would change from 1 April to 6 April and that these changes have no effect on the amount of LGPS pension benefits anyone is entitled to on retirement.

Regulation 21 – Assumed Pensionable Pay (APP)

The policy aim was that there should be no change to the calculation of APP. Therefore, whenever the revaluation is applied for APP, while the revaluation date will now be 6 April, it takes effect from 1 April.

Regulation 23 – Active members

Previously in the LGPS regulations, the closing balance for a scheme year is calculated as at 31 March, the end of the scheme year, comprising the opening balance for the previous year, the pension accrued during the scheme year, and other adjustments. The revaluation adjustment is applied to the closing balance on 1 April, the beginning of the following scheme year to create the opening balance for that scheme year. The policy aim was for the revaluation adjustment to be applied on 6 April, the first day of the following tax year.

Regulations 24 and 25 – Deferred and pensioner members

The policy aims were:

• for members changing status between 1 to 5 April, the revaluation adjustment is applied on 6 April and for any pensions in payment to take effect from the date of the change of status
• for all members changing status, the balance is revalued on 6 April in the following scheme year rather than on 1 April, and for any pensions in payment to take effect from 1 April

Regulation 27 – Flexible retirement members

The policy aim was that for all members changing status, the balance is revalued on 6 April in the following scheme year rather than on 1 April, and for any pensions in payment to take effect from 1 April.

Regulations 41, 42, 44, 45, 47 and 48 – Survivor benefits

The policy aims were:

• for members dying between 1 to 5 April, if a revaluation was due on the 6 April following, that revaluation is allowed for in calculating the survivor pension. This will apply if the member dies in the period 1 to 5 April in the year in which they ceased to be an active member or in the following year. This will ensure that the benefits due to these groups of members reflects the revaluation adjustment that would have applied on 1 April, as if no change had been made
• for members who leave active service and subsequently die within the same scheme year, the survivor pension is revalued on 6 April in the following scheme year rather than on 1 April, and takes effect from 1 April

Regulations 43 and 46 – Death grants for deferred and pensioner members who die in the period 1-5 April

For the purposes of calculating the death grant, the policy aim was that, if a revaluation was due on the 6 April following, that revaluation is allowed for in calculating the death grant. This will ensure that the death grant in relation to these groups of members reflects the revaluation adjustment that would have applied on 1 April, as if no change had been made.

Definition changes to “revaluation adjustment” in Schedule 1

The policy aim was to clarify that the revaluation adjustment is applied on 6 April in the following scheme year. For the purposes of transferred Club Service, the aim was that funds would apply revaluation adjustment for transferred Club Service on 6 April, regardless of the revaluation adjustment date from the sending scheme. Where revaluation of transferred service should apply at a different rate, this would continue to be the case and remain unchanged.

Definition of “revaluation date” in Schedule 1

The policy aim was to change the revaluation date in the Local Government Pension Scheme from 1 April to 6 April.

3. Executive summary of responses

The consultation received 44 responses. Below is a summary highlighting the outcome of the consultation.

• 91% of respondents agreed that the annual revaluation date should change from 1 to 6 April, though some respondents highlighted the challenge of implementation given the timing
• 9% disagreed about taking forward this change, with one respondent highlighting that they agreed with the date change but disagreed overall simply because timing to deliver the change felt too tight
• 96% of respondents broadly agreed that the draft regulations attached to the consultation would give effect to the intended policy aim. Some responses suggested minor amendments to the regulations, which are discussed below. This 96% also includes some of those respondents who did not necessarily agree with changing the annual revaluation date change itself but agreed that the draft regulations delivered the stated policy aims
• 4% of respondents disagreed that the draft regulations deliver the intended change and policy aim. This was either because they disagreed that the change was necessary in the first instance or because they suggested an alternative approach

4. Detailed summary and government response

This section sets out some of the key points raised during the consultation and the government’s response.

The majority of respondents, predominantly from administering authorities, stated that adopting the date change from 1 to 6 April seemed sensible and fair and would ensure that LGPS members do not pay tax on pension growth due to inflation. These respondents recognised that this change was necessary in order to reduce the number of LGPS members breaching the annual allowance threshold as a result of inflation and agreed that inflation should not be taken into account when measuring pension growth for the annual allowance.

Responses also stated that the new regulations would correct the change that occurred in the LGPS when, from 2015/16, the Pension Input Period (PIP) ceased to be synchronised with the Scheme year which continued to run from 1 April to 31 March.

Some respondents highlighted that they would welcome this change particularly as it would ease administrative burdens by reducing the number of ‘accurate’ pension savings to be prepared and issued. ‘Accurate’ pension savings calculations refer to those cases where an approximate threshold (typically within 10% of the annual allowance) is passed and further data is required from an employer to perform an ‘accurate’ calculation. It was recognised that without this change, administrators face many complex and technical annual allowance calculations as the PIP would not be aligned with the scheme year.

A few respondents highlighted that without making this date change, this issue is likely to have an age discriminatory impact because those potentially affected are generally long-serving older members. Some respondents particularly welcomed the change as it mitigates concerns about the impact of inflation on those members with more modest incomes who may become subject to pension taxation as a result of the issue.

A few respondents welcomed the change from the perspective that the same change was also being introduced in the NHS scheme.

One response also highlighted that this change would help with retention of more experienced staff members.

Concerns raised in consultation responses and the government response

The main concerns raised in the consultation are grouped by theme and listed below along with the government’s response. The numbers in the “concerns raised” sections correspond to the numbers in the “Government response” sections.

Policy concerns raised

1. One respondent raised the concern that adopting this change will only benefit a small number of LGPS members, not the majority of LGPS members and is therefore not worth adopting.
2. Another respondent raised the concern that changing the annual revaluation date from 1 April to 6 April would make them worse off.
3. One respondent questioned whether a change in the date is the best way of mitigating the impact of current inflation figures. They suggested a better approach may be to change the Pension Input Amount (PIA) calculation, so rather than uplifting the opening balance by last year’s CPI, the revaluation would continue on 1 April, but then the closing balance would be reduced for PIA purposes by the current year’s CPI.
4. A couple of responses raised that as a result of the change, members whose last day of active service falls within 31 March – 5 April and elect to take the maximum Pension Commencement Lump Sum, may receive a slightly smaller lump sum.
5. A few responses raised that changing the revaluation date in the LGPS may cause some issues regarding Club Transfers.
6. Some responses raised concerns around the timing of this change and the difficulties of implementing this change ahead of April 2023. Responses pointed out that this means administering authorities may need to undertake manual calculations.

Government response to policy concerns raised

1. GAD findings showed that 26,000 scheme members earning over £50,000 (in 2020) and 14,000 scheme members earning over £60,000 (in 2020) are at a higher likelihood of exceeding their 2022/23 annual allowance. Although this is a small proportion of the LGPS membership, the policy aim is to mitigate the additional tax strain on individuals arising from the inflation level in September for this year and into the future. This will mostly nullify the effects of inflation in individual annual allowance calculations, meaning members will not pay tax on pensions growth relating to cost-of-living increases. Under the proposed change where the revaluation date will change from 1 April to 6 April, the expected number of annual allowance breaches are to be significantly reduced, with around just 6,000 members estimated to breach the threshold.
2. It is important to clarify that although the revaluation date would change from 1 April to 6 April, this change will have no effect on the amount of LGPS pension benefits anyone is entitled to. As such, no member will be adversely impacted by the change.
3. The calculation of PIA is governed by the Finance Act, so the suggestion of amending the PIA calculation cannot be implemented by changes to the LGPS regulations. In addition, changing the PIA calculation would impact all registered pension schemes, including public and private sector schemes, and both defined benefit and defined contribution schemes. To enable individuals to plan their pension savings over the tax year, it is preferable that the PIA calculation is based on information that is known at the start of the tax year (e.g. for the 2022/23 year, the CPI figure of 3.1% from September 2021) rather than information that arises during the tax year (e.g. the CPI figure of 10.1% for Sep 2022). As such, changing the PIA calculation would not be the most appropriate way to mitigate the impact of current inflation figures on LGPS members.
4. This issue is ultimately a tax question for administrators. If it is the case, the impact is that the member still gets the same annual pension at retirement, but a slight reduction in any potential lump sum.
5. Under regulations 96(1)(a) and 101(2)(a), the administering authority must act in accordance with the Club Memorandum. The Club Secretariat is aware of potential issues caused by the change in the revaluation date and will take appropriate action.
6. The government recognises the challenges associated with the timing of these new regulations but considers that the policy aim of reducing the number of members breaching the annual allowance threshold and potentially incurring a tax charge justifies introducing the change now.

Concerns raised regarding the draft regulations delivering the policy aims

1. One respondent noted that for members who leave active membership on 5 April, it is not clear that the regulations cover them appropriately and that there is a risk that the member would miss out on the revaluation due on 6 April.
2. One respondent suggested that the regulations should remove any doubt as to which “revaluation date” regulations 24(4B) and 25(4A) are referring.
3. One respondent suggested we replace the phrase “flexible retirement pensioner member” at regulation 27(5) with “entitled to that pension” as the former phrase is not defined nor used elsewhere in the regulations.
4. One respondent suggested drafting changes to regulations 44 and 45 to work properly for deferred pensioner members.
5. One respondent suggested drafting changes to regulations pertaining to survivor benefits to make clear that as the member died before the next revaluation date, the revaluation adjustment will not be due on the member’s notional or actual pension, but due to the survivor.
6. One respondent suggested drafting changes to ensure that regulation 45(12) properly covers children of deceased deferred members.
7. One respondent suggested that regulations should be unambiguous when referring to a “Scheme year”.

Government response to concerns raised regarding the draft regulations delivering the policy aims

1. The regulations have been amended to make clear that members who leave active service on 5 April do not miss out on the revaluation due on 6 April. The government is aware that this could also be clarified elsewhere in the LGPS 2013 Regulations not amended by these regulations and will consider this in due course.
2. The government agrees that the regulations 24(4B) and 25(4A) should be unambiguous as to which revaluation date they are referring. These regulations have been amended to remove any doubt.
3. The government agrees that the phrase “a flexible retirement pensioner member” should be replaced with “entitled to that pension”. The regulations have been amended accordingly.
4. Regulations 44 and 45 have been amended to work properly for deferred pensioner members.
5. Regulations pertaining to survivor benefits have been amended to make clear that the revaluation adjustment “would have been” due on the member’s notional or actual pension.
6. Changes have been made to ensure that regulation 45(12) properly covers children of deceased deferred members.
7. Relevant references to “year” that are to be read as “Scheme year” have been amended to “Scheme year”.

Other concerns raised

1. A few respondents highlighted minor typographical errors.
2. A few respondents highlighted existing concerns with the 2013 LGPS Regulations.

Government response to other concerns raised

1. All typographical errors pointed out in the regulations have been fixed.
2. The government notes all the concerns raised regarding existing issues with the LGPS 2013 Regulations but does not consider it pertinent or timely to address those issues with these new regulations.