Safer Communities DirectorateScottish Government Police Division Ricrjgk1Qltos gov.scot
Scottish Police BTP devolution transfer of officers and civilian staff pensions
A Proposal to the Trustee of the British Transport Police Force Superannuation Fund CBTPFSF') and of the British Transport Police Shared Cost Section ('BTP Section') of Railways Pension Scheme ('RPS').
This proposal has been agreed by the Scottish Government the Westminster Government and the British Transport Police Authority ('BTPA') following initial exploratory discussions at official level between SG, Scottish Police Authority (SPA), Department for Transport ('DfT'), BTPA, and other stakeholders in the Schemes. It is currently under consideration by SPA Board. This work formed part of a project work stream reporting to the Joint Programme Board ('JPB') responsible for delivering the devolution of railway policing to Scotland.
27 October 2017
The Scotland Act 2016 gave competence to the Scottish Parliament to legislate for the policing of railways and railways property in Scotland. The Railway Policing (Scotland) Act 2017 1 received Royal Assent on 1 August 2017 and makes provision for the Police Service of Scotland to police railways and railway property. It is the intention of the SG and the
Westminster Government to make the secondary legislation which will provide for the transfer of constables, civilian staff, and all other assets, rights and liabilities used by the Authority and the British Transport Police (BTP) Force in relation to their functions in Scotland. The constables that are to transfer to the Police Service of Scotland currently number 208 and will be both office holders and will also become employees of the SPA. The civilian staff that are to transfer currently number 43, and will become employees of the SPA. The aim of the SG is to combine the policing of railways in Scotland with general policing once the transfer is effected. Please note that we are referring to the constables as officers in this paper as this is how they are generally referred to but in legislation they are referred to as constables.
The object of this paper is to outline a proposal to the Trustee of the BTPFSF and of the BTP Section concerning the arrangements for the transferring active members ('TMs') and also some deferred and pensioner members' pensions.
1. The affected officers are currently mainly members of BTPFSF but with a few being members of the BTP Section of the RPS, and the affected civilian staff are members of the BTP Section. After integration new officers recruited , by the Police Service of Scotland and assigned to railway policing in Scotland will only be eligible for membership of the Police Pension Scheme (Scotland) 2015 and new civilian staff recruits will oniy be eligibie for membership of the Local Government Pension Scheme (Scotland) 3 . Officers and staff already appointed and re-assigned to railway policing will retain membership of their existing pension scheme.
Railway Policing(Sc-otland) Act 201 i
htt :/lwww.le islation. ov.uk/as 12017/4/ dfs/as 20170004 en. df
The Police Pension Scheme (Scotland) Regulations 2015 S.S.'. 2015/142
3 The Local Government Pension Scheme (Scotland) Regulation 2014 S.S.'. 2014/164
The Railway Policing (Scotland) Act 2017 makes provision for charging for policing of the railways by the Police Service of Scotland. Following the transfer it is expected that agreements will be entered into by the SPA and train operating companies for the policing of railways in Scotland. These agreements will include arrangements for officers' and civilian staff pension costs.
The SG aims to ensure there will be no detriment to TMs' pension provision after the transfer, including accrued and future service rights. Appendix A contains a letter dated 26 June 2017 from the Scottish Minister for Transport and the Islands, Humza Yousaf MSP, to the Chairman of the British Transport Police Federation in response to concerns raised by the Federation. This provides a summary of the policy intention behind the integration of railway policing with general policing in Scotland, and of the SG's intentions regarding pay and conditions, including pensions, of the transferring officers and civilian staff.
Two options were considered by the JPB. The first option, which has now been discarded, was the continuation of the current arrangenlents, with SPA becoming a participating employer of the BTPFSF and the BTP Section. However, for SGI this presents the problem of a potential 'Section 75' debt cessation payment being triggered when SPA ceases to have any active members in each scheme. Those events could require large capital injections to the schemes. To avoid this contingency, the proposal set out below was considered the preferable option by the JPB.
To maintain TMs' membership of the BTPFSF and the RPS, but on a segregated basis, transferring the TMs to new Sections of those schemes created for this purpose.
It is understood that the Trustee has extensive experience of this kind of transfer, and of segregation, through its operation of rail franchise pension arrangements. The RPS already has a number of sections. The BTPFSF does not currently have any segregated sections, and has never had a bulk transfer out.
All reasonable costs incurred by the Trustee directly related to this proposal will be met by SG. A contract to this effect, and setting out detailed terms, will be provided by SG for agreement by the Trustee before proceeding with any work under the proposal. Whilst appreciating the complexities involved in establishing new sections in the schemes, SG is keen to protect the taxpayer from unnecessary costs and would welcome a shared commitment along these lines from the Trustee.
The segregation and transfer process
The past service liabilities of the TMs wili transfer to the new Sections on the transfer date. In order to maintain the balance of active, deferred, and pensioner members in the ceding Sections of the schemes a group of deferred and pensioner members will also be transferred to the new sections. The method for this is still to be agreed however we would suggest that the mechanism used in the RPS for deferred and pensioner transfers as a result of franchise changes is used. This is where a transfer agreement is executed by the SPA, BTPA and the Trustee which sets out how deferred and pensioner members are to be chosen for transfer.
There is a possibility that on 1 April 2019 some of the officers and civilian staff who transfer to the SPA may have already opted out of the BTPFSF and the BTP Section or have started to draw their BTPFSF and RPS pensions. The liability for any such members should be included in the transfer as they will be transferring as employees to SPA. DfT will consider further how to ensure the pension liabilities of these members are transferred to the SPA.
It is also proposed that assets calculated on a 'share of fund' basis will be allocated to the new Sections. The value of assets to be transferred will be the same proportion of the total assets as the liabilities of the transferring members will be relative to the total member liabilities. For each scheme the amount of assets to be allocated to the new Sections on the transfer date will be determined as follows.
If value of total member liabilities in the section/scheme before the transfer = VLO, value of active, deferred and pensioner liabilities to be transferred = VI-I, and value of total assets before the transfer = AO, then value of assets to be transferred =
1 1 . The members would be transferred to the new Sections via a compulsory transfer. Where such transfers involve the establishment of a new scheme, such transfers are normally governed by DWP regulations, in particular Sl 1991/167 (The Occupational Pension Schemes (Preservation of Benefit) Regulations 1991) — section 12. Under those regulations the ceding section/scheme's actuaries would need to provide a certificate that benefits in the new Sections are no less favourable. This should not cause a problem because the benefits will be mirrored in the new Sections.
It is intended that the BTPFSF will be amended to become a segregated scheme and a new Section created in the RPS. The new Sections of both schemes will be established on 1 April 2019 and the TMs will be transferred into these new Sections on this date. Deferred and pensioner members will transfer at a later date.
It is understood that under arrangements used in the RPS the Trustee has required a
new section to be 100% funded on establishment. SG would prefer not to make any special contribution to meet that requirement on the transfer date, but instead to have SPA and the TMs contribute to the schemes at the employer and member rates currently in force. The funding of the new sections would then be determined following the next actuarial valuations of the schemes, in agreement with the principles described in paragraphs 18 to 20 below. We also note that special protection applies to
- -some longstanding members-of-the BTP Section in the event of-the transfer of their employment. We request clarity from the Trustee on whether the requirement for any additional top-up funding applies in this case. If it does apply, the source of that funding will be subject to agreement between the two Governments and the two Authorities. How much would depend on the funding level at the transfer date as well as the protection requirements.
On the tratnsfer date the SPA will become the designated enoployer of both Sections. It will become liable on that date for funding the new Sections in accordance with Schedules of Contributions periodically agreed with the Trustee.
Following the transfer date, the Scheme Actuaries of the Schemes will carry out the share of fund calculations to determine the assets to be allocated to the new Sections. Allocating the groups of deferred and pensioner members to be transferred to the new Sections will be set out in the transfer agreement, but as stated previously, we would suggest using the same mechanism as that used in the RPS for deferred and pensioner members.
The Trustee will undertake to satisfy all regulatory disclosure requirements affecting the transfer. All communications to members will be agreed with SG and B TPA in advance.
17. As part of the process, it is expected that the Trustee will need to make a number of amendments to the schemes' trust deeds in order to provide for the separate Sections. The SG will also amend pensions legislation to provide for the schemes, the powers for which are provided by Section 26 of the Public Service Pensions Act 2013.
After the transfer: funding the new Sections
In order to retain the current high covenant rating it is expected that the Trustee will require the same level of security backing that the transferred benefits currently have under their existing arrangements. SPA expect that they will satisfy this requirement for the separate sections being established, in view of its effective backing by SG, and if required will seek agreement on this from RPMl}s Employer Covenant Team.
SG may wish to follow a different funding and investment strategy than would be typical for a closed pension scheme. For example, it may prefer the Trustee to continue holding a significant proportion of return-seeking assets, noting the strong covenant that will stand behind the new Sections. This is still under discussion and further details will follow. SG would like to explore with the Trustee's advisers, in advance of this agreement being finalised, how any emerging surplus in the new Sections will be managed. SG has no plans to alter the scheme benefits other than to mirror any reform or changes over time in the benefits of the remaining non-transferring members.
20. Regardless of the particular choice of funding strategy adopted, the standard contribution rates for the new Sections are expected to increase over time because of the ageing memberships. The schemes are both shared cost schemes, where members pay 40% of the required contributions, and employers pay 60%. This means the TMs will (other things being equal) face increasing contributions over time. SG intends to protect TMs against this effect, in keeping with the intention of those members suffering no detriment through theüntegration programme. Accordingly, SG will propose, for the Trustee's reassurance, a mechanism to maintain member contributions at a level comparable with those of the non-transferring members.
After the transfer: administration and governance
. We understand the Schemes' rules provide for the Trustee to choose the administrator. SG agrees to use the chosen administrators for the new Sections. The administrative expenses are met by the schemes. SG will be interested to explore with the Trustee how a share of the scheme's expenses will be allocated to the new Sections. (The administration expenses in the BTPFSF are currently being met through a contribution of 2% of active members' scheme or pensionable salary.)
We understand both Schemes operate committees with delegated responsibility for specific aspects of management. SG would like to have influence over the funding and investment strategy of the new Sections and will discuss with the Trustee how best this might be achieved.
We would welcome the Trustee's comments on this proposal, and in particular we welcome their views on whether any aspects of the proposal require any new legislation or changes to existing legislation. Orders are currently being drafted under Sections 90 and 104 of the Scotland Act 1998 which have to be finalised by March 2018. We would also welcome confirmation that there are no issues with the SPA becoming an employer in the rail industry for pension purposes.
If the Trustee is broadly in favour of proceeding, we suggest the details of this proposal are refined as necessary to provide the basis for a formal legal agreement.
Letter dated 26 June 2017 from Scottish Minister for Transport and the Islands, Humza Yousaf MSP, to the Chairman of the British Transport Police Federation: http://www. ov.scot/Resource/0052/00523524. df