On the go:The Office for Budget Responsibility has said its current estimate of the cost of the McCloud remedy could be an understatement, since different remedies for the discrimination case could increase the projected spending.
The cost of remedying the age discrimination arising from the 2015 public sector pension reforms has been placed at £17.5bn, or £2.5bn for each year of the “remedy period” that runs from April 1 2015 to April 1 2022.
The OBR explained that this does not amount to a public spending increase of £2.5bn a year. It is rather “the discounted future cost of pension rights accrued in each year of the remedy period, but these will only begin to be paid once each affected member retires and will be spread over the period of their retirement”.
The reason for the uncertainty, and for the OBR warning that the overall figure might increase, is that different departments are still deciding how best to implement the remedy, making it “a policy risk that will raise spending at our next forecast”.
However, it is estimated that the overall cost will be spread over 60 to 70 years, which the OBR’s report said entails notable but relatively modest annual costs to affected schemes.
The OBR estimates that two-thirds of affected scheme members are under 60 and so unlikely to start drawing on their more generous pension payments within the scope of its medium-term forecast.
Penny Cogher, partner at Irwin Mitchell, noted that implementing the McCloud judgment is “a major piece of work and the changes to be made will have ripples that run through the various pension schemes for the next 60 to 70 years”.
“No wonder the costs are difficult to estimate, and I suspect the report represents the lower end of these possible costs.”
She added it is “fortunate” that the report shows that net public service pension payments are down by more than £2bn a year in 2020-21 and 2021-22 relative to the March 2020 forecast.
“[This is] largely due to the increase in contributions from a larger NHS pensionable pay bill and reduced pension payments in the armed forces, due to fewer retirements and the weak external jobs market,” Cogher said.
“However, future spending costs are still due to increase by £1.2bn a year from 2022-23 onwards, reflecting the higher path for [consumer price index] inflation and lower pay growth assumptions.”
