Recommendation 5

HM Treasury has had to revisit key elements of the reforms, and these issues may take decades to resolve fully. HM Treasury should have foreseen the age discrimination issue that gave rise to the 2018 McCloud judgment, and putting things right will take many decades to resolve. HM Treasury wants members to pay to put this right—at an estimated cost of £17 billion—despite this being its own mistake. Separately, HM Treasury is concerned that the cost control mechanism—designed to share costs of pensions fairly between employees and employers—is not sufficiently protecting the taxpayer and members. The Government Actuary’s Department says Public Sector Pensions 7 that the cost control mechanism is likely to be triggered very frequently, rather than only as a result of ‘extraordinary, unpredictable events’ as HM Treasury intended. This undermines the usefulness and stability of the mechanism and will impact employees and employers alike. HM Treasury was advised at the time of the reforms of both the age discrimination problem and that the cost control mechanism could easily be triggered. Recommendation: HM Treasury must prioritise work to quickly resolve the challenges presented by the McCloud judgment and cost control mechanism, in order to give certainty to scheme members and employers, and rebuild the trust lost through these issues. The Department should write to us with an update in six months’ time.