Chief Secretary (): There are currently more than 6
million active members of the public service pensions schemes,
which cover the NHS, teachers, the armed forces, the police,
firefighters, local government workers, the judiciary and civil
servants. Valuations of the public service pension schemes are
undertaken every four years. The valuations are important as they
ensure that the full costs of each scheme are understood and
fully recognised by government, and that there is a fair balance
of risk between members and taxpayers with regard to the cost of
providing the schemes.
This valuation is the first time that a reformed cost control
mechanism will be used. Following a review by the Government
Actuary and a public consultation, the cost control mechanism has
been reformed to address concerns around it not meeting its
original objectives. The objectives are to protect the Exchequer,
and by extension taxpayers, from unforeseen costs; to maintain
the value of public service pension schemes to members; and to
provide stability and certainty on member benefit and
contribution levels. The reforms mean that the mechanism now only
assesses costs associated with the post-2015 reformed schemes,
increases the margin by which costs need to vary from the target
in order for benefit, or member contribution, changes to be
required from 2% to 3% of pensionable pay, and includes an
‘economic check’ such that changes will only happen if the costs
would still be outside the same margin had the impact of changes
in long-term economic assumptions been included. The Public
Service Pension Act 2013, when taken together with regulations
made under it and the Public Service Pensions and Judicial
Offices Act 2022, provides for the introduction of these reforms.
On 31 August 2023, HM Treasury published a document that sets out
how the valuations are to be conducted for this valuation
cycle[1]. The document sets a range of assumptions that
departments and the Scottish and Welsh governments must use in
finalising their valuations of public service pension schemes.
The document allows public service employers, departments and
scheme administrators to complete their valuations and prepare
for the implementation of new employer contribution rates and
take any necessary steps with respect to cost control mechanism
results. The publication of this document follows a statutory
consultation with the Government Actuary, which concluded in
August 2023. Copies of this document, the 2023 Directions, have
been placed in the Houses of Parliament libraries.
A key factor which influences the valuation results of all
unfunded schemes is a reduction in the SCAPE (superannuation
contributions adjusted for past experience) discount rate which
is used to express schemes' future pension payments as a
present-day cost, based on the Office for Budget Responsibility’s
forecast of long-term GDP growth. The updated SCAPE discount rate
was announced in March 2023 and is expected to cause increases to
employer contribution rates. This is because pension payments
paid in the future will be discounted at a lower rate and
therefore have a higher value in today’s terms. HM Treasury has
committed to provide funding, for all centrally funded employers,
for increases in employer contribution rates resulting from the
2020 valuations as a consequence of changes to the SCAPE discount
rate.
The outcome of the valuations are expected to be confirmed later
this year via the publication of each scheme’s valuation report.
Changes to employer contribution rates will be implemented with
effect from 1 April 2024, and any changes to benefits required to
bring a scheme back to target cost would apply retrospectively
from 1 April 2023. An additional process operates in the Local
Government Pension Scheme (LGPS) (England and Wales) run by the
LGPS England and Wales Scheme Advisory Board.
[1]
https://www.gov.uk/government/publications/public-service-pensions-2020-valuations
