McCloud remedy costs to be included in public sector schemes’ 2016 valuations

The government plans to proceed with its proposal to include the costs of the McCloud remedy in the cost control mechanism for public sector pension schemes’ 2016 valuations, despite widespread opposition.

Member contribution rates for 2022/23 will be based on the 2016 valuation, which was released in December 2021, including McCloud remedy costs.

Contribution rates were usually set every four years as part of the cost control mechanism process. However, the cost control element of the 2016 valuations was paused due to the McCloud and Sargeant judgments.

The government had asked whether it should ‘roll over’ member contribution rates from 2021/22, and impose the cost of the McCloud remedy in the 2016 valuations, in its consultation on the Civil Service Pension Scheme.

It received 1,257 responses to the question, of which 1,253 disagreed with the roll forward of contributions and imposition of McCloud costs on 2016 valuations.

The government noted that 1,239 of the responded it received used a standardised template provided by a union.

The template argued that member contribution rates for 2022/23 should be informed by the results of the 2016 cost control mechanism without the inclusion of the costs of McCloud, that the inclusion of McCloud costs was “unlawful”, that the Cabinet Office should not be adopting such a short-term approach to the setting of member contribution rates, and that it should publish a timeline for the finalisation of the 2016 cost control mechanism and complete the 2020 valuation.

Despite the opposition, the Cabinet Office stated that the results of the 2016 valuation concluded that the cost cap of the scheme was 0.4 per cent below the employer cost cap, and therefore lies within the 2 per cent corridor specified by the Treasury.

This meant, according to the government, that no changes to benefits or member contributions were required.

There are currently two judicial review applications underway against the inclusion of the McCloud costs within the cost control mechanism, with the government noting that unless there was an “adverse judgment” at some point in the future requiring the recalculation of the 2016 valuation, it would base the 2022/23 contributions on the 2016 valuation, including McCloud costs.

“The 2020 valuation, due at a later date, will be the next time when there is the possibility of adjusting employee contribution rates,” the consultation response stated.

“HM Treasury is expected to provide directions to all public service pension schemes during 2022, which will facilitate the completion of the valuation and cost control mechanism.

“The results of the valuation will be published as soon as the process has been completed and we anticipate any changes to the employee contribution rates, if required, will be implemented for the 2023/24 financial year.”

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