Education Briefing - Recent changes to the TPS

• United Kingdom

• Education - Briefings

12-09-2019

On 1 September 2019, the Teachers' Pensions Schemes (Amendment) Regulations 2019 (SI 2019/1134) (the “Regulations”) took effect. The Regulations amended the rules of the Teachers’ Pension Scheme (“TPS”) to take account of developments in pensions case law in recent years, specifically the Brewster and Walker v Innospec decisions, as well as provide various minor updates designed to improve the operation of the TPS.

Brewster

The changes these Regulations make to account for the Brewster decision remove the requirement for unmarried couples to have to completed an additional form to nominate their partner for equivalent spousal benefits. The Regulations align the TPS provisions for unmarried couples with those for surviving spouses and civil partners. Such changes should be relatively straightforward for employers to manage as there is now no additional nomination form for members to complete. For commentary on the Brewster decision itself, please see our earlier briefing here.

Walker v Innospec

In respect of the Walker v Innospec decision, the amendments made to the 2010 Scheme by these Regulations are broadly to provide same-sex couples with equivalent benefits to those of opposite-sex widows (but not widowers – further consultation is expected as primary legislation in this area has not yet been amended for this decision). The law previously permitted schemes to restrict benefits for same-sex spouses accrued prior to 5 December 2005 to the member’s ‘guaranteed minimum pension’ (GMP) only (i.e. not the pension benefits in excess of the relatively low GMP amount enjoyed by opposite-sex spouses). This decision therefore extended the benefits payable to a category of beneficiaries. Further information on the Walker v Innospec decision can be found in our previous briefing here.

The 2015 section of the TPS already provided equivalent benefits for same-sex spouses, so no amendment was required. The main effect of these changes arising from this decision are that the valuation assumptions used when valuing the 2010 section of the TPS will need to be revised.

What other amendments are being made?

Other amendments being made under the Regulations are minor but should hopefully provide clarity for certain issues and amend drafting errors, for example, clarifying that medical reports used for assessing ill-health incapacity must be recent (i.e. dated within the previous 18 months). Such amendments are not material to employers.

What implications do the Regulations have for education sector employers participating in the TPS?

As noted above, the changes being made in respect of the Walker v Innospec decision are likely to result in changes to the valuation assumptions of the TPS, as benefits are effectively being increased for an entire category of beneficiaries (i.e. same-sex spouses). This is therefore likely to increase liabilities in the TPS.

However, the effect of this decision is likely to be rolled in with the valuation changes to public sector schemes as a result of the McCloud/Sargeant case mentioned in our briefing here. The Government has estimated the cost of implementing the Walker v Innospec decision at approximately £20m for public sector schemes. This amount however pales in comparison to the effect of the McCloud/Sargeant decision which was estimated to be £4bn per year across the public sector. The overall effect of the McCloud/Sargeant decision on the valuation is as yet unknown and we anticipate the Government will legislate before a further hearing scheduled for next year.

We therefore expect the changes made by these Regulations to incur a (relatively) minor cost implication for employers in the TPS.