Source · Select Committees · Public Accounts Committee
Recommendation 5
5
HM Treasury has had to revisit key elements of the reforms, and these issues may...
Conclusion
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.
Government Response
Acknowledged
HM Government
Acknowledged
5.1 The government agrees with the Committee’s recommendation. Target implementation date: February 2022 5.2 The government committed to legislate as soon as practicable to remedy the discrimination identified by the Court of Appeal in the McCloud judgment in its consultation Public service pensions: Changes to the transitional arrangements to the 2015 schemes. Subsequently, the Public Service Pensions and Judicial Offices Bill was introduced in the House of Lords on 19 July 2021. 5.3 For active and deferred members, the Bill introduces the ‘deferred choice underpin’ as set out in the government’s consultation response. Under this approach, members can make their choice over which set of benefits to have earned during the remedy period at retirement, when they will have a greater certainty over which option is most advantageous for them. This means the impact of the McCloud judgment on affected individuals will be resolved as they reach retirement. This approach was strongly supported at consultation. 5.4 HM Treasury is setting out in amending Directions the detail of how the cost control element of the 2016 valuations will be completed. These will be published following engagement with stakeholders before schemes then finalise results. The government announced in February 2021 that any ceiling breaches that occur at the 2016 valuations will be waived, as it would be inappropriate to reduce benefit levels based on a mechanism that is not working as intended. However, any benefit increases due as a result of any floor breaches will be delivered. 5.5 The government has also recently launched a consultation on changes to the cost control mechanism following the Government Actuary’s review of the mechanism published in June 2021. Any changes it takes forward following consultation will be implemented ahead of the completion of 2020 valuations. 5.6 The government will write to the Committee with an update on both areas of work in six months.