Source · Select Committees · Public Accounts Committee
Recommendation 10
10
While the cost control mechanism was only used for the first time in 2016, HM...
Conclusion
While the cost control mechanism was only used for the first time in 2016, HM Treasury is concerned that it is not sufficiently protecting the taxpayer and members. The provisional results of the 2016 valuations show that costs had fallen across all schemes, and therefore members could expect an increase in their benefits or a reduction in the amount they contribute.20 However, HM Treasury paused the implementation of those changes while it formed its response to the McCloud judgment. HM Treasury has asked the Government Actuary’s Department (GAD) to review the mechanism to ensure it meets government’s objectives. When asked for current reflections from the review, GAD told us that the mechanism is likely to be triggered “very frequently”, rather than only as a result of ‘extraordinary, unpredictable events’ as HM Treasury intended. In his view, this undermines the stability of the mechanism and appears not to be keeping taxpayer costs under control.21
Government Response
Acknowledged
HM Government
Acknowledged
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. Once results are finalised, schemes will commence discussions with Scheme Advisory Boards on how to rectify any floor breaches that occur. 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.