Anger over proposed civil service pension scheme changes

Treasury accused of trying to “game” system with reforms to cost-control mechanism

By Jim Dunton

29 Jun 2021

The Treasury’s plans to reform the way the member contributions to the civil service pension scheme keep pace with the scheme’s long-term affordability to government have been attacked by a union representing civil servants.

Proposed changes to the cost-control mechanism that can raise or lower member contributions and benefits to the civil service pension scheme – and other unfunded public sector pension schemes – would make it harder for changes that help scheme members to be introduced.

Professionals’ union Prospect said the proposals, which are based on a report by government actuary Martin Clarke, appeared to roll back on a preliminary agreement with civil service unions that underpinned pensions reforms that came into effect in 2015.

Under the Treasury’s plans, the pension scheme cost-control mechanism would only be triggered by costs related to reformed public sector pension schemes – such as the ones introduced in 2015. Additionally, the amount of deviation from previous cost projections needed for the trigger to be activated would also rise from 2% of pensionable pay to 3%.

The Treasury is also planning to introduce an “economic check” to the cost-control mechanism process, which would mean the broader economic situation of the nation was taken into account before a triggering of the cost-control mechanism resulted in a change to pension-scheme benefits.

Prospect deputy general secretary Garry Graham said the heads of agreement reached between trade unions and the government in 2011 that paved the way for 2015’s reforms had made specific reference to the cost-sharing mechanism.

“The agreement was for a symmetrical mechanism that would treat rising and falling cost the same and would only be triggered by ‘dramatic changes’,” he said. 

“The agreement also outlined that financial cost pressures, including changes to the discount rate, would be met by employers and not within the cost-sharing mechanism.”

Graham said Prospect would judge the Treasury’s proposed amendments to the cost-sharing mechanism on the basis of whether they were seeking to ensure the mechanism operated as it was originally intended, or whether they represented a divergence from the agreement.

“We are opposed to the inclusion of an economic check in the cost-sharing mechanism,” Graham said. 

“Firstly, we consider this element to be an unnecessary addition to proposals to limit the scope of the mechanism to the reformed schemes and to widen the corridor. 

“Secondly, we consider this to be an unacceptable divergence from the agreement reached with government on public sector pension reform and would provide government with the opportunity to ‘game’ the system and introduce a level of subjectivity to this important issue which is also unacceptable.”

Graham said the 2011 agreement had been clear that financial pressures including the discount rate would be employer costs and excluded from the member costs of the cost-sharing mechanism.

Changes will “reset assumptions” for public-sector pensions

Lucille Thirlby, assistant general secretary at the FDA union, also voiced concerns about the full breadth of the Treasury’s proposed changes.

“Public sector pensions are an incredibly important part of a public servant’s employment package, so these consultations are fundamental, interlinked and require careful consideration and thought,” she said.

“The proposals, once agreed, will reset assumptions for public sector pensions policy, and we therefore look forward to engaging with the Treasury on the consultations.

“However, the FDA remains to be convinced on the proposed ‘hurdle’ of economic checks being added to the cost cap mechanism, as a way to apply a validatory layer as recommended by the government actuary.”

PCS, the civil service’s largest union, said the Treasury’s latest proposals were a “cynical response” from ministers.

“Civil and public servants have been betrayed on pensions,” the union said. “It’s clear that the government’s policy is to transfer more of the cost of civil service pensions onto members. Along with other unions, PCS continues to explore legal options to secure the application of the existing cost-sharing mechanism.”

The Treasury consultation said the measures being proposed were in line with the government actuary’s recent recommendations.

It said the measures were aimed at bringing the cost-control mechanism used for unfunded pension schemes in line with its original aim of being triggered only by “extraordinary, unpredictable events” and that the proposals were anticipated to result in a triggering once in every 10 valuations, or roughly every 40 years.

The current mechanism was on course to be triggered by the 2016 valuation of public-sector pension schemes, a move unions expected to result in member contributions reducing by 2%. However the valuation process was controversially paused in the wake of the 2018 Court of Appeal judgment in the McCloud case, which found that elements of the government’s 2015 pension reforms were discriminatory on age grounds.

Government actuary Clarke’s report said that around 60% of the cost reductions that contributed to the 2016 valuation were related to legacy scheme members, who would not receive any contribution reduction or benefit enhancement resulting from the cost-control mechanism.

The Treasury’s consultation on its proposed cost-control mechanism changes is open to responses until 11.45pm on 19 August.

This story was updated at 14:45 on 29 June 2021 to include a response from the FDA. It was further updated at 16:20 on 29 June 2021 to include comments from PCS

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