HM Treasury has published new directions for public service pension scheme actuarial valuations, after completing its consultation with the Government Actuary in August 2023.

The new directions revoke and replace the previous directions due to the “extensive changes” necessitated by the reforms to the cost control mechanism, and to ensure that the 2020 valuations of the public service pension schemes can be completed using updated assumptions.

The government previously confirmed that it would be implementing all three proposed reforms to the cost control mechanism and discount rate methodology of public service pension schemes, as recommended following the Government Actuary's Department (GAD) review.

The Public Service Pensions and Judicial Offices Act 2022 amended the Public Service Pensions Act 2013 to expressly provide for certain elements of these reforms.

However, in 2023 the government provided further details on the reformed scheme only design, in particular how it would operate with regard to those pension scheme members in scope of the remedy for the McCloud and Sargeant litigation.

In light of the "substantial" number of changes needed, HM Treasury therefore looked to issue the replacement directions.

In particular, the update aims to achieve eight key changes, including removing specific directions that related to the pause of the cost control element of the 2016 valuation process, to implement the government’s decision to change the scape discount rate as confirmed in March, and miscellaneous changes to ensure the valuations operate as intended.

Responding to the government’s draft directions, then Government Actuary, Martin Clarke, agreed that the directions achieve the eight primary purposes, and will deliver results for the 2020 valuations which largely meet the stated objectives, with some better met than others, and that they are, in the round, technically complete and coherent.

He stated: "In particular the cost control mechanism reforms have been implemented consistently with my review and the government’s consultation response, although I note there is more than one way to implement a reformed-scheme-only mechanism.

"There are, however, a couple of areas where changes in cost will emerge in the mechanism which are not due to an actual change in experience in the reformed scheme – the mortality data error in the NHS (England and Wales) Pension Scheme and the impact of the Public Sector Transfer Club funding strains."

Clarke also noted that whilst there has been a period of "significant change" to the landscape of the public service pension schemes, the structure of the new Directions, however, remains similar and there are large areas of commonality with previous versions of the Directions.

However, he noted that as this is the first valuation at which the reformed cost control mechanism has been tested, and in view of the complex nature of actuarial valuations, it is "impossible" to be completely certain at a detailed level that the 2023 Directions are fully technically complete and coherent until the valuations they apply to have been completed.

Given this, he emphasised the need to keep the directions under review.

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