Part 1: Public Service Pension Schemes Chapter 4: General Section 92: Amendments relating to employer cost cap
PSPA 2013 and PSPA NI 2014 provide for the operation of the cost control mechanism (CCM). The CCM assesses certain elements of scheme costs and compares these costs to a base level (the "employer cost cap"), set at the first valuation. If the costs measured in the CCM have decreased/increased by more than the specified margins below/above the employer cost cap, then member benefits are increased/reduced to bring costs back to target (or member contributions are reduced/increased). The upper and lower margins have been specified in Treasury Regulations as a percentage of pensionable pay. So, there is effectively a corridor either side of the employer cost cap, with margins representing the ‘ceiling’ and ‘floor’.
	By amending section 12 of PSPA 2013, section 92 sets the legislative framework for the implementation of two of the Government’s three reforms to the CCM, namely the reformed scheme only design and the economic check. Section 92 confers powers on HM Treasury (or Northern Ireland’s Department of Finance) to implement the two reforms through Directions. It also makes some minor technical changes to PSPA 2013.
	Subsection (2) provides for the employer cost cap to be set within a year of the date on which a scheme’s first valuation (i.e., the valuation that includes a calculation of the employer cost cap) is completed. In effect, this allows the employer cost cap to be set after the regulations of a new scheme are made.
	Subsection (3) clarifies that "employer cost cap" in section 12 of PSPA 2013 refers to the rate set by virtue of s.12(1) PSPA 2013.
	Subsection (4) clarifies that employer cost caps are set for schemes made under section 1 of PSPA 2013 and that how changes in costs are to be measured is to be in accordance with Treasury Directions.
	Subsection (5)(a) and (b) make further minor clarifications by substituting "the cap" with "the employer cost cap of the scheme" and "subsequent valuations" with "the second or any subsequent valuation".
	Subsections (5)(c) and (7) relate to the reformed scheme only design. Subsection 5(c) makes a minor amendment to s.12(4)(c) PSPA 2013, clarifying that Treasury Directions may determine whether and to what extent costs or changes in the costs of connected schemes are to be considered by the CCM. This makes it explicit that Treasury Directions may provide for the costs or changes in costs of connected schemes to be excluded from the CCM. Subsection (7) amends s.12(5)(a) PSPA 2013 to clarify that whether and how to take into account the costs of connected schemes is determined by Treasury Directions made under s.12(4) PSPA 2013, which is amended by subsection (5)(c) as per the above.
	Subsection (5)(d) sets the framework for the introduction of the economic check. It inserts a new subsection into s.12(4) PSPA 2013, stating that the data, methodologies, and assumptions used for the purposes of specifying (in Treasury Directions) the costs, or changes in costs, that are to be taken into account by the CCM are to relate to the growth in the economy, growth in earnings or the rate of inflation. This creates a new power for the Treasury to implement the economic check in Directions.
	Subsection (6) inserts a new subsection to clarify that statements made prior to the date the Government Actuary’s (GA) report was delivered to the Government (27 May 2021) should no longer apply to the operation of the CCM, in order to reflect clearly in law and for the avoidance of doubt the change in policy position that the implementation of the economic check represents. This ensures subsection (5)(d) creates a power that can introduce an economic check designed in line with the GA’s recommendation and the Government’s policy intention as expressed in the Government’s consultation response and public statements made since.
	Subsection (8) clarifies that in s.12(6) PSPA 2013 "the scheme" refers to a scheme under section 1 of PSPA 2013. It also clarifies that "the margins" refers to either of the margins specified under s.12(5)(a) PSPA 2013 – that is, either the upper or lower margin.
	Subsection (9) makes a number of clarifications regarding the process that follows a breach of the CCM by inserting four new subsections into s.12 PSPA 2013. First, it provides for Treasury Directions to specify the time at which an increase or decrease in members’ benefits or contributions should take effect. Second, it requires that steps to rectify a breach are only taken after the scheme actuary has certified those steps would achieve the target cost of the scheme. Third, it provides that Treasury Directions may specify which costs or changes in costs are to be taken into account, or which data, methodologies and assumptions are to be used, for the purposes of determining whether any steps, if taken, would achieve the target cost of the scheme. Finally, it clarifies that "the scheme actuary" means the actuary who carried out, or is, for the time being, exercising actuarial functions in relation to, the valuation under s.11 of PSPA 2013 that suggests a breach has occurred.
	Equivalent changes are made to PSPA NI 2014, save for the fact that the relevant powers are conferred on Northern Ireland’s Department of Finance, not HM Treasury. Subsection (19) also provides for the removal of "and Personnel" in subsections (3), (4), (5), (8), (9) and (10) of section 12 PSPA NI 2014.