Public Sector pension schemes have gone through significant change over recent years, primarily as a result of the McCloud Judgment that addressed unlawful age discrimination.
Remedy Period Calculations
As a result of these changes, public sector pension scheme administrators have to carry out additional calculations for anyone affected by the Public Service Pension Scheme remedy, as they have to consider whether remedy period benefits based upon legacy scheme benefits or CARE scheme benefits result in a higher CEV. It is the higher CEV that has to be provided for divorce purposes.
It is important to note that the outcome of these calculations may change in the future. It is at the point of retirement when an individual will be able to choose between the terms of the legacy and reformed scheme. However, it is established practice to take the higher CEV for divorce purposes – noting that a CEV is an estimate of the value of a member’s benefits at a particular point in time.
Additional work for administrators
We are very conscious of the extra layer of work for scheme administrators as well as the further complexity, hence, we believe it appropriate to take a safety first approach and look at verifying the CEV that has been calculated by the scheme. We want to be confident that we are working with accurate information. We have access to the schemes actuarial factors and guidance notes (published by the Government Actuary Department - GAD) on how to calculate CEVs to carry out these verification checks.
In the vast majority of cases, we can reconcile the CEVs that are shown on the CEV and benefit statements. This provides reassurance for us and all involved and we will confirm this verification in our reports. Occasionally, however, we do come across instances where we cannot verify a CEV based upon the benefit information supplied. Often this is because not all Public Sector schemes provide the necessary breakdown of pre and post remedy benefits.
Recent case highlighting the importance of checking
We had such a situation recently, involving the NHS Pension Scheme 1995/2008.
The information provided in the CEV statement confirmed that a higher CEV was achieved if remedy period benefits were based upon the legacy scheme - i.e. NHS Pension Scheme 1995/2008. We carried out our sense check to try to reconcile the CEV shown and could not match what was shown. What made matters worse was a looming FDR date.
Our calculation resulted in a CEV that was just 46% of the value shown in the statement - not an insignificant difference.
We raised the query with the instructing solicitors and asked for it to be checked by NHSBA.
They did so and NHSBA came back to us confirming that the CEV was correct.
We remained unconvinced and looked again at our calculations and got the same discrepancy and reported back to our instructing solicitors, providing a breakdown of our calculations, asking again if they could refer back to NHSBA and for NHSBA to provide us with a breakdown of how they arrived at the CEV. NHSBA did provide a full breakdown of their calculations and how they arrived at the CEV and in doing so it became clear what mistakes they had made. They quite rightly acknowledged their errors.
It is worthy of note that NHSBA were very quick with their response, which helped us being able to prepare and issue this report in good time for the court hearing.
Balancing further information and additional delays for individuals
When we come across situations where we cannot perfectly reconcile benefits, we first consider how material it is likely to be to the calculations we have been asked to carry out in the letter of instruction. If we take the view, in the overall context, it is unlikely to be material, we will typically not let this hold up the progress of the report but we will inform all parties of our findings when preparing our report.
Inconsistencies do tend to be rare, yet this case highlights the importance of these sense checks and we will continue to carry them out.
Gathering data
From a data gathering perspective, while it is does not happen very often, we are occasionally provided with a breakdown of CEV calculations. In the main, however, we receive just a CEV statement that includes benefits accrued. It may not always be the case that these type of queries can be resolved quickly. In an attempt to avoid situations like this, in addition to the parties obtaining an up to date CEV statement, requesting a breakdown of the calculations could well prove useful, the information will be there, it simply needs to be asked for.