Voice Community Official Responses: Public Service Pensions

Voice Community's responses to two HM Treasury consultations on public service pensions

Public service pensions: Consultation on the discount rate methodology

Background: The SCAPE discount rate is a discount rate used in the valuation of unfunded public service pension schemes to set employer contribution rates. It expresses future pension promises that are being built up in present-day terms and is set by HM Treasury following a prescribed methodology. The current methodology for setting the SCAPE discount rate has been in place since 2011. This consultation sought views on the objectives for the SCAPE discount rate and the most appropriate methodology for setting the SCAPE discount rate going forward.

Summary: Voice Community believe that greater transparency is necessary for all public sector workers’ pensions. It is important to reflect on the degree to which public sector pensions contribute to people’s decision to work in the public sector. The perception that many public sector jobs involve delayed remuneration- lower up front pay but generous pension benefits- contributes to the attractiveness of the sector. Attacking the quality of pension provision with repeated out-of-cycle valuations and excessive tinkering, will dissuade employers from participating in the scheme and staff from joining or remaining in the sector. This is especially true where there is a perception of government manipulation of such pensions. These factors should be considered holistically.

Read Voice Community's Official Response (pdf)   

Read the consultation: Public service pensions: Consultation on the discount rate methodology 

Public service pensions: cost control mechanism consultation

Background: At the request of HM Treasury, the Government Actuary carried out a review of the cost control mechanism in the public service pension schemes. His final report set out his assessment of the current mechanism and recommendations on possible changes. The Government considered the Government Actuary’s recommendations and launched this consultation to seek views on three changes to the mechanism, all of which were recommendations by the Government Actuary. The Government believes that these changes will establish a fairer balance of risks between taxpayers and scheme members, and create a more stable mechanism.

Summary: Balance is needed within the scheme, but scheme members should not be asked to disproportionately take on risk. Therefore, in order to protect active scheme members, Voice Community agree with the proposal to base the cost sharing mechanism on the career average scheme, since this is the only scheme which can be adjusted. The design of career average pensions is such that there is reduced risk to the scheme guarantor (the exchequer) compared to final salary models, and the increased ‘normal pension age’ can mean continued contributions to the scheme long past the age at which members might previously have begun drawing on their pension. Unfortunately, lower pay increases and changes to life expectancy growth led to a reduction in cost in 2016, but by separating out the current and legacy schemes this influence will be removed and the mitigations inherent within the scheme design should prove to be sufficient going forward.

Read Voice Community's Official Response (pdf)  

Read the consultation Public service pensions: cost control mechanism consultation