Important year ahead for public sector pensions

Over the last three years, public sector pensions have become a key collective issue for the union. The next year is set to be another very important year for public sector pensions, writes Prospect pensions officer Stewart Mott.

McCloud remedy

In the new year the consultations to implement the first stage of the remedy to McCloud in each of the major public sector pension schemes will close. These consultations close all of the ‘legacy schemes’ to future accrual and move all public servants to the ‘reformed’ 2015 schemes. Within the civil service, all members will be enrolled into Alpha from 1 April 2022.

In 2022 there will be a second round of consultations on implementing the deferred choice underpin in each of the major public sector pension schemes.

The deadline for implementation of the deferred choice underpin has been set at October 2023, however we hope that schemes will be able to begin implementation in advance of this deadline.

It is important members remember that only benefits accrued after 1 April 2022 will be in Alpha, pension benefits in final salary schemes will retain their final salary linking, and a decision on the deferred choice underpin will only be required when members are presented with illustrations under both scenarios.

Scheme valuations

The outcome of the cost control mechanism from the 2016 valuation is expected shortly. Members will know that the union has opposed the inclusion of the costs of the remedy to McCloud in this mechanism. Without the inclusion schemes, including the civil service, would have breached the cost floor, triggering improvements to the scheme design for service from 1 April 2019. We are an interested party to legal challenges submitted by unions on the inclusion of the cost of McCloud for the cost control mechanism. We are monitoring developments closely.

Discount rate

We are shortly expecting the outcome of the Treasury consultation on the methodology for the discount rate to public sector pensions. The discount rate is a key factor for determining the employer contribution rates of the public sector schemes, as well as the cost of added pension and effective pension age contracts.

Historically, the discount rate used was the social time preference rate which is used by Treasury for government spending. The coalition government switched the methodology to a discount rate linked to GDP.

In our response we argued the government should move away from a discount rate linked to GDP to the Social Time Preference rate. Once the methodology has been confirmed, a review of the discount rate will then be undertaken.

There will be only limited direct impact for members (for those making added pension purchases or have effective pension age contracts) as member contribution rates are unaffected. However, there could be indirect consequences for members on departments and agencies facing increases pension contributions. We will monitor developments in this area closely.

State pension age

The Secretary of State for the Department for Work and Pensions has announced the instruction for the second review of state pension age, that is mandated by legislation to take place within six years of the last review. State pension age is the normal pension age in the reformed schemes, including Alpha in the civil service. Therefore, any reviews of state pension age are incredibly important for our members in the sector.

The announcement included an ‘independent review’ of the factors by Conservative peer Baroness Neville-Rolfe DBE CMG. The factors to be reviewed include the percentage of life spent in retirement, and whether this should be fixed. The union will of course be monitoring developments and respond to any public consultations.

Prospect deputy general secretary Garry Graham has said on this:

“The public must have confidence in any state pension age review outcomes. It cannot simply be used as a blunt tool to erode the percentage of life spent in retirement. This would be unfair to future generations and undermine the review process, societal confidence and support for this important benefit.”