The government has published its response to the recent consultation on the cost control mechanism (CCM).
What is the cost control mechanism?
The Independent Public Service Pensions Commission recommended in 2011 that the new public service pension schemes should include an employer cost control mechanism to protect taxpayers from unforeseen increases in scheme costs. While the commission recommended a mechanism to protect the taxpayer from increased cost, the final negotiated mechanism is symmetrical and so also maintains the value of pensions to members when costs fall.
Why was there a consultation on it?
In light of the impact of the McCloud judgement, and previous outcomes from the mechanism, the government launched a consultation seeking views on three possible changes to the mechanism, which NAHT submitted a response to.
In its response to the consultation, the Treasury confirmed it would be taking forward the three reform proposals outlined in the consultation.
- The first was moving to a "reformed scheme-only design". This means that the mechanism will only considers past and future service in the reformed schemes; with costs related to legacy schemes excluded.
- The second was widening the corridor from plus/minus 2 per cent of pensionable pay to plus/minus 3 per cent, with the aim being to ensure consistency between the benefits being assessed and the set potentially being adjusted, thereby creating more consistency in the system.
- The third was the introduction of an "economic check" in order that the cost-control mechanism is able to reflect the actual cost to the government of providing pension benefits. Under this system, a breach of the mechanism "would only be implemented if it would still have occurred had any changes in the long-term economic assumptions have been considered", the government's consultation explained.
NAHT opposed the review of the mechanism, pressing for no alterations to be made and that all public servants be offered access to the career average sections of public sector pension schemes in the ordinary way post 1 April 2022. Within this, we outlined our fundamental opposition to the proposal to introduce an economic check into the mechanism.
NAHT will continue to engage with government on the alterations, through our role on the pension scheme advisory board.
What's the timeline for this?
The Treasury is aiming to implement all three proposals in time for the 2020 public sector scheme valuations.
First published 20 October 2021