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Following the reports of the Independent Public Service Pensions Commission, chaired by Lord Hutton of Furness, the Government legislated in the Public Service Pensions Act 2013 for a framework for new public service pension schemes, to be introduced from April 2015 (2014 for local government). The new structure is designed to manage some of the costs and risks to the Exchequer of providing public service pensions. For example, basing benefits on career average earnings rather than final salary, removes from the Exchequer much of the ‘salary risk’ and linking the normal pension age to the State Pension age (except for the ‘uniformed services, where it is 60) removes much of the longevity risk.

As an added safety valve, the Commission recommended that the Government should set a “fixed cost ceiling: the proportion of pensionable pay that they will contribute, on average, to employees’ pensions over the long-term. If this is exceeded then there should be a consultation process to bring costs back within the ceiling, with an automatic default change if agreement cannot be reached”(Interim report, recommendation 12).

The Government legislated in section 12 of the Public Service Pensions Act 2013 for a  ‘cost control mechanism’, which would operate symmetrically, so that if valuations showed that scheme costs had risen or fallen outside of a target rate, steps would have to be taken to bring them back to target.

In September 2018, the Government said that initial results of the first post-reform valuations, indicated that members should get “improved pension benefits for employment over the period April 2019 to March 2023.” There would be consultation on what this would mean for each scheme and changes would be implemented from April 2019 (HC Deb 6 September 2018 c13WS).

However, on 30 January 2019, the Government said it was pausing the operation of the cost control mechanism pending the outcome of the Court of Appeal judgement in McCloud v Ministry of Justice. This held that the ‘transitional protection’ offered to some members as part of the reforms amounted to unlawful discrimination. The Government accepted that the issues should be addressed across public service schemes (HCWS 1275 15 July 2019). The pause continues on the grounds that while discussions on how to do address the discrimination are ongoing “the value of pension schemes to members cannot be assessed with certainty” (PQ 14694, 13 February 2020).

Trade unions representing public servants have objected, arguing that the Treasury should accept that the valuations demonstrate that the 2015 reforms were effective in reducing costs and should implement the cost control mechanism, allowing an increase in member benefits or a reduction in member contributions.

On 25 March 2020, the Government said it would provide an update on the cost control mechanism alongside a forthcoming consultation on how it proposed to remove the discrimination in the 2015 reforms identified by the Court of Appeal (HCWS 187, 25 March 2020).

On 25 April 2020, a group of four public service unions – the Fire Brigades Union, Prison Officers Association, Public and Commercial Services Union and the GMB – announced that they had launched a legal challenge to the pause of the cost control mechanism.

For more on the reforms, see CBP 5768 Public service pensions – the 2015 reforms (April 2020).

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