And who is Matthews anyway?
By Claire Hey, Public Sector Pensions Technical Lead
In all the excitement surrounding McCloud, amending legislation for the Firefighters’ Pension Scheme (England) 2006 which came into force on 1 October 2023 may have slipped under your radar. These amendments were made to enact another legal remedy concerning retained, or on-call, firefighters in a case known as ‘Matthews’.
To trace the origins of this case, we need to rewind to the year 2000 and the introduction of the Part-Time Workers (Prevention of Less Favourable Treatment) Regulations, or PTWR for short.
A potted history lesson
After the PWTR came into force, a legal claim was made by several retained firefighters that they should receive equal treatment with full-time regular firefighters and be allowed access to the Firefighters' Pension Scheme 1992 (FPS 1992).
Historically, retained firefighters were not able to join a pension scheme linked to their employment. They were first eligible to join an occupational scheme when the Firefighters' Pension Scheme 2006 (FPS 2006) was introduced on 6 April 2006.
Following a protracted legal process, the House of Lords ruled that retained firefighters employed between 1 July 2000 and 5 April 2006 should be allowed to join a scheme with retrospective effect. However, as the FPS 1992 was closed to new entrants, these individuals were given access to the FPS 2006, with modifying provisions to reflect the benefit structure of the 1992 scheme.
A time-limited and extremely resource-intensive exercise took place between 2014 and 2015 to offer eligible individuals the opportunity to purchase backdated service to 1 July 2000. These individuals became known as special members.
Reopening the legal can of worms
More recently, the European Court of Justice (ECJ) made a further determination in respect to fee-paid judges, which allowed the purchase of backdated service could be extended beyond the date of the PTWR. This was a binding judgment with application across any similar claims, such as those pending for retained firefighters, and the government accepted that a remedy must be found for those affected.
After an extended period of negotiations on the scope and mechanics of the settlement, a Memorandum of Understanding (MoU) was agreed between the legal parties to the case in March 2022. The remedy for retained firefighters affected by the ECJ judgment was to be provided by way of a second options exercise, allowing in-scope individuals the opportunity to purchase pension entitlement as a special member of the FPS 2006 – with no backstop date. While the MoU applied to England only, it was expected that the devolved nations would apply a similar remedy.
The second options exercise
Following public consultation, the legislation defining the parameters of the exercise came into effect on 1 October 2023. From that date, Fire & Rescue Authorities (FRAs) have 18 months to implement the Matthews remedy.
Under the terms of the second options exercise, individuals can buy retrospective pensionable service back to the start date of their retained employment, as long as the service was continuous, and they were still employed as a retained firefighter between 7 April 2000 and 5 April 2006. Individuals may not take part in the second exercise if they received an offer under the first exercise and they do not have any retained service before 1 July 2000.
FRAs must use “reasonable endeavours” to make initial contact with all those in scope within three months of October 2023, inviting them to express an interest in purchasing service. On receipt of an expression of interest form, the FRA must calculate the amount of available service, the cost of purchasing that service, and the projected benefits which would derive from it. A tool has been provided by the Government Actuary’s Department (GAD) to perform this calculation. In the final stages of the exercise, individuals will make an election (or not) and the relevant details will be passed to the pension scheme administrator to create the relevant records and make payments.
So why might this be difficult?
Imagine that you are an FRA trying to find needles in a haystack. You haven’t looked for these needles for 23 years and you don’t know how many there are to find. You know you’ve got three months to find as many as possible, but you’re not entirely sure what measures you have to go to to meet a reasonable endeavours requirement. Even if you have some idea where the needle was when you last saw it, there’s a good chance it might have moved, or in some cases, died!
Now let’s imagine that you have located all of your in-scope needles/ individuals – or they have identified themselves to you. You have asked them whether they would like to express an interest in joining a generous defined benefit scheme, with the opportunity to receive a lifetime pension and tax-free lump sum (immediately in some scenarios) in exchange for the contributions due.
We could probably quite reasonably imagine that a significant proportion of these individuals will be extremely interested.
Only, you now must provide a bespoke calculation to each individual. Luckily you have a tool to help you do this; however, to complete the calculation, you will need to know how long the individual was employed and how much pay they received each year, as well as the equivalent full-time pay for that period. Bearing in mind that some of those eligible may have started employment while Harold Wilson was Prime Minister and Cilla Black was dominating the UK charts, and there are legal limits on how long data may be retained and a high probability of changing payroll and HR systems within the intervening period.
And you must do this within three months.
All of this against a backdrop of tightening budgets, difficulty recruiting and retaining experienced staff, and the small matter of implementing McCloud for the majority of the operational firefighter workforce.
In this scenario, we can see that the challenges fall broadly into four main categories: identification, data, timescales, and resources.
Heywood Pension Technologies can offer a wide range of solutions to solve a problem like Matthews.
Although a significant proportion of the effort to identify individuals and collate historic data will be undertaken by FRAs before pension administrators become involved in the process, Heywood provides a dedicated service for address cleansing and tracing and mortality screening, which can be utilised by non-Heywood customers to assist in meeting the statutory reasonable endeavours requirement.
In acknowledgement of the challenge of obtaining pay and employment data spanning several decades, the Government has provided a set of standard assumptions which can be used by FRAs in the absence of physical/ electronic records. These may be used for periods of service before 1 July 2000 and only where actual data cannot be established.
Once the relevant data has been passed to the pension scheme administrators to set up member records, that data will be used to process entitlement to benefits. It is therefore crucial that the data is complete and accurate.
Heywood Insights offers customers a range of customisable interactive dashboards alongside powerful reports to share and explore.
While take-up of the first options exercise was limited, it is anticipated that buy-in to the second exercise will be significantly higher, due to the extended period available to purchase and the increased age profile of eligible individuals. Records must be digitised for Matthews, even where they may not have been under the initial exercise, given that some of those impacted will be in scope for both Matthews and McCloud remedies, and for schemes to meet their impending pensions dashboards duties.
With time at a premium - and timescales for the exercise are fixed in statute - we can offer tools and solutions to streamline customer processes and add efficiencies to tasks.
Altair Workflow helps drive efficiency and increases productivity by automating administrative processes, thereby reducing the immense pressure on pension schemes to process work in a timely and accurate manner and report on those workloads to stakeholders.
Heywood understands that administrators are under increasing pressure from the demands of implementing complex legal remedies in addition to maintaining business-as-usual service. We also understand that recruiting and retaining experienced staff to meet those demands is challenging.
In addition to our technological solutions, Heywood can also offer additional bespoke support to customers in the form of consultancy services. We can effectively act as an extension to your administration team with our subject matter expertise and unrivalled knowledge of the Firefighters’ Pension Scheme and member data structure.
We strive to maintain a supportive and collaborative relationship with our customers, providing regular bulletins, webinars, and opportunities for networking with like-minded colleagues.