Chief Secretary (): The Government has today
published a policy statement on the cost control mechanism (CCM)
in public service pensions titled ‘Public Service Pensions –
the Cost Control Mechanism and the Reformed Scheme Only
Design.’
Following recommendations from the Independent Public Service
Pensions Commission (IPSPC) in 2011, the CCM was introduced into
the valuation process for the reformed public service pension
schemes in the Public Service Pensions Act 2013 following
consultation with member representatives. It was designed to
ensure a fair balance of risk regarding the cost of providing
defined benefit (DB) public service pensions between members and
the taxpayer. If, when the CCM is tested, scheme costs have
increased or decreased by more than a specified percentage of
pensionable pay compared to a target cost, then member benefits
(and/or member contributions) in the relevant scheme are adjusted
to bring costs back to target.
Following a review by the Government Actuary and a full public
consultation process, the Government confirmed in October 2021
that it would implement 3 reforms to the CCM in time for the 2020
valuations:
- Reformed scheme only design;
- Wider 3% cost corridor; and
- Economic check.
The policy statement published today provides further details on
how the reformed scheme only design will operate from the 2020
valuations onwards, in particular with regard to those pension
scheme members in scope of the remedy for the McCloud litigation.
“Reformed schemes” in this context mean the public service
pension schemes introduced as part of reforms following the IPSPC
Review, from 2015 for most public service pension schemes and
from 2014 for the Local Government Pension Scheme (LGPS) for
England & Wales. The reformed scheme only design means that
the CCM will only consider past and future service in the
reformed schemes, with legacy scheme costs excluded from the
mechanism. This will lead to a more stable CCM and ensure
consistency between the set of benefits being assessed and the
set of benefits potentially being adjusted, thereby ensuring
fairness for both taxpayers and scheme members.
However, pension scheme members of most schemes in scope of the
McCloud remedy will have a choice between benefits in respect of
their service from 1 April 2015 and 31 March 2022 to be
calculated on the basis of the reformed scheme or the previous,
legacy public service pension scheme. The policy statement
confirms that all service on or before 31 March 2015 (31 March
for the Local Government Pension Scheme in England and Wales)
will be excluded from the CCM as this service is exclusively in
the legacy schemes. All service from 1 April 2022 onwards will be
included in the CCM, as this service will be exclusively in the
reformed schemes. In particular, the statement provides details
of how service during the McCloud remedy period - 1 April 2015 –
31 March 2022 for most schemes - will be treated under the
reformed scheme only design and concludes that McCloud remedy
costs will not have a material impact on the CCM from the 2020
valuations onwards.
The full policy statement can be found at: www.gov.uk/government/publications/public-service-pensions-the-cost-control-mechanism-and-the-reformed-scheme-only-design-policy-statement
