NI Police Pension Scheme breaches cost cap

Pensions Expert reported that several other public sector defined benefit plans, such as the Judicial Pension Scheme and the Fire Service Pension Schemes, breached the cost cap.

The cost-control mechanism was introduced to ensure a fair balance of risks between scheme members and the taxpayer. It allows for a plus or minus 2 per cent corridor that, if breached at subsequent valuations, requires that action be taken to bring costs back within the target range.

The mechanism was paused following the McCloud judgment because of what the government actuary, Martin Clarke, called the “perverse results” it produced, which would have seen most schemes breach the cost-cap floor and therefore be compelled to increase member benefits.

HM Treasury unpaused the mechanism in October last year, but not before stipulating that the cost of implementing the McCloud remedy would be placed on schemes’ 2016 valuations, leading to significant protests from unions and public sector scheme members, who argued that the government was going back on previously agreed promises to improve benefits and/or cut contribution rates.

The decision to place the cost of the McCloud remedy on the 2016 valuations has been the subject of legal challenges, with multiple unions filing for judicial review.

According to a GAD report published on June 1, the Police Pension Scheme for Northern Ireland had a proposed employer cost cap set at 13.1 per cent of pay when the 2016 valuation process was paused.

Now that process has been completed, the cost-cap cost of the scheme — calculated by adding the employer contribution correction cost and the McCloud remedy cost together — stands at 24.8 per cent, 11.7 per cent above the cost cap and outside the plus/minus 2 per cent corridor.

The McCloud remedy accounted for 16 per cent of the cost-cap cost, leading to a breach of the ceiling.