Comment on the closed consultation “Public Service Pensions: Cost Control Mechanism consultation”
05 Oct 2021
Commenting on the closed consultation “Public Service Pensions: Cost Control Mechanism consultation”, Robert Bilton, Head of LGPS Valuation, said:
“We welcome the Government’s decision to make changes to the mechanism, and the increased stability these will bring to future cost cap valuation results. In particular, the ‘economic check’ will help to reduce the potential for ‘perverse’ results to occur. The check should make it less likely that we will see a recurrence of the situation from the 2016 actuarial valuations, where benefit improvements are proposed at the same time as contribution rate increases.
“It is disappointing that the Government has not opted to introduce a qualitative review of the raw results. Whilst we understand the Government’s concern about a loss in transparency, we believe this review would have further improved the mechanism by providing a ‘common sense’ check on what is still a very formulaic process.
“We disagree with the Government’s decision to use expected long-term GDP growth for cost control in the LGPS. While we understand the Government’s desire for consistency and commonality with the unfunded schemes, this decision significantly weakens alignment of the cost control mechanism in the LGPS with actual employer costs, and could lead to further contrary outcomes where the cost control result is contradictory to the direction of employer contribution rates. We think it would have been preferable that the LGPS cost control mechanism uses a discount rate which reflects the expected return from the overall asset allocation of LGPS funds.
“The Government has set out some areas for further work, including the opportunity for the Scottish LGPS SAB to implement their own cost control mechanism, as the English and Welsh LGPS SAB does, and further engagement with the LGPS on managing the employer costs which arise from excluding the legacy schemes from the cost control mechanism.”