HM Treasury has announced it will resume the cost control mechanism for public sector pension schemes, noting the concern that the 18-month suspension has caused.
Alongside a consultation on implementing the McCloud judgment, the department said it "recognises that the pause has been a matter of concern for members and their representatives".
It added that the cost control element of the 2016 valuation was not possible to complete while the pause was in place, and that "full and regular valuations are an important step in understanding and controlling scheme costs".
The mechanism - which has been paused since January 2019 - aims to allow steps to be taken to address a rise or fall in scheme costs outside of a target range.
The Treasury will now "follow the established procedure for valuations" and planned for the process to be completed by next year, with employer contribution rates not due to be changed before the next valuations process.
The process is likely to increase member costs as the McCloud and Sargeant judgments on judges' and firefighters' pension schemes increased the value of public sector pensions. The judgments had declared transitional protection for older members of the schemes - where they were allowed to remain in more favourable arrangements as compared to younger members - amounted to unlawful discrimination on the basis of age.
Meanwhile, the consultation on implementing the McCloud judgment sets out plans to allow eligible members to choose whether to receive benefits from the legacy or reformed schemes for the period between 1 April 2015 and 31 March 2022.
The Treasury is asking whether members would need to make that decision in the year or two after the point of implementation in 2022, or if a deferred choice underpin should operate, allowing members to make their decision at retirement. Pensioner members will be expected to make a choice "as soon as practicable" after the changes are implemented.
The Treasury said it recognised that some members will receive better benefits in one scheme or the other, but no blanket approach is possible. After this period, it is also proposed that all active members are moved into the reformed schemes.
The consultation addresses English, Welsh and Scottish schemes for the NHS, teachers, firefighters, police, and the Civil Service, as well as the UK Armed Forces, and Civil Services (Others) scheme. Changes to judicial pension schemes, the English, Welsh and Scottish Local Government Pension Schemes, and Northern Irish public sector schemes will be consulted on separately.
In a foreword to the consultation, chief secretary to the Treasury Steve Barclay said: "The reforms that were introduced in 2015 were progressive reforms and were in part intended to even out the value of pensions between some of the highest and lowest earners, resulting in some lower and middle earners being better off in the reformed schemes.
"Rather than just returning all members to the legacy schemes, I want to ensure that people who are better off in the reformed schemes can choose to keep those benefits. I also want to ensure that those who were closest to retirement age, and so were prevented from moving to the reformed schemes, will now have that choice. "
He added: "The issues we are facing here are complex and affect large numbers of people in different ways, so final decisions will need to take full and careful account of the views of all stakeholders."
The consultation will close on 11 October.
AJ Bell estimated the implementation could cost the government £17bn across three million members. Senior analyst Tom Selby said it was a "colossal and entirely avoidable own goal".
"Lord Hutton's final report on the changes specifically warned age discrimination legislation meant it ‘would not be possible in practice to provide protection from change for members who are already above a certain age'. The decision to ignore this advice has proven extremely costly indeed.
"For those affected by the new settlement, today's announcement is clearly good news, with the average member due to benefit by almost £6,000. However, for public sector employers and in turn taxpayers, it represents a huge cost which can only be borne either by cuts to services or higher taxes."
But ITM said the administration challenge might not be as high as expected. Director Maurice Titley said: "We've worked with a few schemes that want to get ahead on McCloud and make sure their administration teams are not overrun with conflicting priorities. And in the majority of cases the impact of McCloud is minor. So we've created a series of data tests that identify members where resource and efforts in data collection should be focused.
"Of course, here at ITM we are always focused on data and making it better, but especially in the current climate we believe in creating efficiencies and driving the best value for our clients."
Yesterday, Aon urged LGPS funds to begin McCloud implementation work now, warning it could take one or two years to complete.
An “early warning” tool has been launched by Hymans Robertson to help defined benefit (DB) schemes understand which potential regulatory approach will be more suitable for their current funding strategy.
The Pension Schemes Bill will now move for consideration in the House of Commons after it was passed in the House of Lords yesterday (15 July) following a third reading.
The economic crisis caused by Covid-19 has reinforced The Pensions Regulator’s (TPR) view that its defined benefit (DB) funding principles are “right”, says David Fairs.
Local Government Pension Scheme (LGPS) funds must carry out assessments urgently to understand the impact of the McCloud judgment, says Aon.
Every month, several firms issue trackers of the aggregate defined benefit (DB) scheme funding position. See here for the June 2020 estimates on the various measures…