GAD and commutation.

[Al R]

I have mentioned the Government Actuarial Department before (GAD). A week or 2 ago, in a long standing wrangle, the High Court dismissed a GAD appeal to a previous ruling, namely that it should not be subject to the scrutiny of the Pensions Ombudsman. The Court of Appeal was clear in distinguishing the duties of GAD from those of actuaries retained by normal pension scheme managers to update commutation tables.. in other words, GAD was/is pivotal to tahe functioning of the (in this particular instance) the Police Officers and the Firefighters pension schemes. Why is this important?

Well, the Pensions Ombudsman can therefore now hear complaints from members of the Schemes in relation to GAD's alleged failures to update the commutation factors tables used by Schemes that it works with when determining commutation factors. The Court upheld that GAD's duty to produce and revise actuarial tables used by certain public sector pension schemes to perform benefit calculations, such as the commutation of a pension for a lump sum, was central to the operation of the schemes.

Pensions Ombudsman (http://www.pensions-ombudsman.org.uk/News/)

GAD was therefore obliged to decide whether the tables needed updating and to update them as necessary and the Scheme structure was such that it could only function properly if GAD updated the commutation tables when necessary. The administering authorities of the Firefighters' Pension Scheme could not change the table or apply different commutation rates but were obliged to use the tables provided by the Department. On that basis, GAD was "concerned with the administration of the Scheme" and therefore within the Pensions Ombudsman's jurisdiction as far as complaints from members we concerned.

From the initial announcement of the ‘new’ factors in 2008, the Fire Brigades Union has actively encouraged former members to complain of maladministration of their scheme as no increases to commutation factors took effect from 1998 until the increase in '08. A frightening oversight, in hindsight, because it could have resulted in larger lump sum benefits when members commuted part of their pensions on retirement.

I am not aware of the exact nature and extent of any possible AFPS exposure (maybe we could ask Forpen to comment?) due to any GAD oversight, and I am not aware how active the push to get information from SPVA is.

Most of my clients profess themselves keen to commute though, so anecdotally, if GAD has been as remiss in the past with AFPS as it has been with the firefighters and the police, then it could be a situation to keep a very close eye on. As I stated, GAD is appealing the ruling and as it stands, and due to normal IFA work commitments and the blummin' Summer holidays, I don't know what, if any, grounds for redress there might be or where any exposure might lie. It is on my radar though and should prove interesting, especially if anyone has been disadvantaged or drawn taxable income needlessly.

One to keep an eye on though, especially if you did commute then. If you want to stay informed, visit the F/Book page Armed Forces Pension Scheme Help and Information Exchange or if it does prove worthwhile in following up, consider joining the Forces Pensions Society.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/27965/20120823AFPS05YPSEMMP124revisedAug2012.pdf

"Scheme Actuary

The Government Actuary’s Department provides actuarial advice to the Armed Forces Pension Scheme Managers and Administrators."

Public Sector Pensions | Occupational Pension Schemes (http://www.gad.gov.uk/services/Occupational_Pensions/)

"GAD provides actuarial advice to a number of UK occupational pension schemes, including some of the largest pension schemes in the country. We have been advising many of the public service schemes for many decades, including the schemes for teachers, the National Health Service, and the armed forces."

[Lima Juliet]

Thanks Al

Is there any danger that we have been overpaid rather than underpaid our commutation sum? Otherwise, I might want to stay 'schtum'...:oh:

LJ :ok:

[Al R]

Leon,

Loose lips sinks ships! There was the case a while back of course when some divorcees, made the subjects of pension sharing orders, were 'overpaid'.

Armed Forces Pensions: 16 Oct 2012: House of Commons debates - TheyWorkForYou (http://www.theyworkforyou.com/debates/?id=2012-10-16a.293.0)

And this one in a similar vein.

http://www.pensions-ombudsman.org.uk/determinations/docs/2013/apr/po-408.doc

[TorqueOfTheDevil]

Many thanks for the detailed update!

[Al R]

By way of an update.

I still don't know how, if at all, this may apply to AFPS scheme members so I would liberally lace it with caveats. However, reading into it a little more, it transpires that when firefighters retired, they were entitled to a pension given (as are ‘we' of course) the option of commuting part of that pension for a lump sum.. and of course, some chose to do so. Therefore, on retirement, they would have received a tax-free lump sum and a smaller pension of ‘x’ as a result of the commutation (remember that you don’t have to commute everything – you can commute parts thereof of the amounts that you are entitled to). The lump sum was calculated on the basis of factors taken from tables prepared by the Government Actuary’s Department (GAD) and as far as I am aware, the tables used until a few years back, were prepared by GAD in 1998.

Revised factors were published by the Department for Communities and Local Government (DCLG) on 21 May 2008. When DCLG published them it instructed employers to back-date their application to retirements on and after 1 October 2007. DCLG has now conceded that they would have to be applied to retirements since 22 August 2006. The rules explicitly required that commutation factors to be set on the basis of “actuarial equivalence” which is something that was discussed here the other week. It means that factors must take account of life expectancies and long term interest rates and those are mentioned at length in the AFPS 2012/13 accounts. In the period between 1998 and 2008, it was widely recognised that life expectancies were improving and long-term interest rates were falling.

However, anyone retiring before then, the new factors were not used in some cases - they should have been introduced earlier but weren’t. This all came to light when the former fire fighting and eagle-eyed lead complainant first became aware that the commutation table factors had not been reviewed when the new tables were published by the DCLG on 21 May 2008. The firefighter in question commenced a complaint under his Firefighters Pension Scheme (FPS) internal dispute resolution procedure in September 2008.

Like AFPS, FPS is a statutory scheme and the roles of the DCLG and GAD are defined in the rules (GAD is similarly defined within the AFPS rules and near-identical arrangements are also made in the Police Pension Scheme). They were analysed by the High Court in Queen on the Application of the Police Federation of England and Wales and Others v The Secretary for the Home Department and Another [2009]. That case concerned errors made in the review of the commutation factors used in the Police Pension Scheme. That review was conducted in parallel with the review in the FPS.

R (on the application of the Police Federation of England and Wales and others) v Secretary of State for the Home Department and another | LexisWeb (http://lexisweb.co.uk/cases/2009/march/r-on-the-application-of-the-police-federation-of-england-and-wales-and-others-v-secretary-of-state-f)

(you'll need to apply for a free trial to read the ruling)

The Court concluded that there definitely was a statutory obligation on the part of GAD to prepare the actuarial tables used and to keep them under review (paragraph 106 of the judgment). The Home Office, in the case of the Police Pension Scheme, and the DCLG in the case of the FPS is not the administrator of the scheme as that term is commonly understood (paragraph 96 of the ruling). The 2012/13 accounts for AFPS were published a few weeks ago, and the scheme administrator is noted thus; “The Chief Executive (Air Vice-Marshal R Paterson – my inclusion) of SPVA has been designated by the Departmental Accounting Officer to be the Scheme Administrator for both the AFPS and AFCS SPVA. It is worth noting that no suggestions of shortcomings are being levied against the FPS and PPS Executive and by extension, either AVM Paterson or SPVA – and most certainly not by me. Rather, the issue seems to be a deficiency of GAD and (in the firefighters case) DCLG.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/224065/AFPS_Accounts_2012_13.pdf (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/224065/AFPS_Accounts_2012_13.pdf)

The Home Office (aka in this instance DCLG) should not have taken the role of instructing what GAD to do and when to do it and GAD it seems, should not have surrendered that role (paragraph 109). The employers had no option but to apply the factors produced by GAD. DCLG has argued that it is not “a person responsible for the management of the [FPS]” for the purposes of section 146 of the Pension Schemes Act 1993 and the Regulations made thereunder. It relies on the conclusion of the Court referred to above. However, a person who is in fact the culprit for maladministration cannot avoid liability by arguing that they should not have been allowed to interfere. As the facts found by the Court show, it was in fact the DCLG’s interference (and GAD’s acquiescence) that caused the problem.

For their parts, GAD and DCLG rather charmingly sought to argue that it was the Fire and Rescue Authority alone who were the people responsible for the administration of the FPS which seems daft – in a similar way that AFPS declares that it has to use the services of GAD, the FPS and the Police Pension Scheme (PPS) make it clear that the employer has no choice but to use the tables that GAD prepare. The court agreed.

However, neither DCLG nor GAD took responsibility for the task of reviewing the commutation factors until discussions took place between DCLG and GAD at some time in 2005 – one can only assume that SPVA or whoever was around before it was, likewise, did not do so – otherwise this mess would have been cleared up a while ago. The duty to undertake a review was in fact GAD’s. GAD assumed that DCLG would initiate a review, and DCLG encouraged or accepted that assumption. That it seems, was an error of law.

This is where it gets spicy, and if you read the AFPS accounts which refer to manning shortfalls, you can imagine that the SPVA undermanning malaise may well have applied here too (if it didn’t, or if I have got this wrong, I apologise unreservedly) but the errors were compounded by maladministration. DCLG did not have a service level agreement or any other form of agreement with GAD setting out their roles and responsibilities with regard to actuarial analysis of factors – one wonders, did MoD? GAD and DCLG seem to have assumed that ensuring that the factors achieved actuarial equivalence would just ‘happen’, when both Departments knew that the 1998 factors were becoming further and further adrift from actuarial equivalence.

It was claimed (notwithstanding GAD is, unsurprisingly, appealing the High Court decision), that this failure constituted maladministration on the part of GAD and DCLG. The financing of the FPS was examined by the DCLG in 2001, and it should have been apparent then that the commutation factors were out of date and needed to be reviewed. It was claimed that if administrative arrangements had been put in place for periodic review of the factors, they would have been updated in 2001 and again in 2004.

If the appeal is kicked into touch, the lead complainant has requested that the Respondents (GAD/DCLG – he doesn’t care who pays up!) pay him an additional commutation lump sum. The Ombudsman has already directed the Respondents to pay an additional lump sum which should only be paid through the pension account only if DCLG pays an additional sum into the account to cover the cost. Nor surprisingly, the additional payment will also take account of the tax which will now be incurred as a result of the fact that the second part of the lump sum will be paid long after the complainant’s retirement.

Like I said, it might be something and it might be nothing.. I don't want to create something out of nothing, but because this is so complicated, if the matter is aired on a rolling basis, it might make reacting easier than getting into it from 'cold'. If I am talking through my backside, then so be it – I apologise and I hope I haven’t got anyone’s hopes up prematurely or at all. Voxpop, can you add anything from the inside track - if there is anything to add?

[Al R]

Quick bump. Has anyone received a letter from SPVA advising them of a commutation overpayment and subsequent recovery action? Or maybe, did anyone receive an extra payment?

[Courtney Mil]

Just leave my pension alone. In todays climate (and previous experience of virtually every financial "tinkering" associated with AF pay and pensions) any changes are usually only for the worse.