Legal background Public service pension schemes and the Court of Appeal’s judgment Cost control mechanism (CCM)
The Government made provisions to establish the CCM in the PSPA 2013. However, the detail regarding the parameters of the CCM – including the costs or changes in costs that are to be taken into account for the purposes of measuring changes in the cost of a scheme – are delegated to Treasury directions made under sections 12(3) and 12(4) of the PSPA 2013. These directions are known as The Public Service Pensions (Valuations and Employer Cost Cap) Directions 2014, as amended.
	A key component of the CCM is the "employer cost cap". Section 12(3) of the PSPA 2013 requires that the "employer cost cap" (i.e. the rate, expressed as a percentage of pensionable earnings of members of the scheme, to be used for the purpose of measuring changes in the cost of the scheme) is set in accordance with Treasury directions. Those Treasury directions may in particular specify how the first valuation of a new scheme (carried out under section 11 of the PSPA 2013) is to be taken into account in establishing the ‘employer cost cap’ for that scheme. The "employer cost cap" was incorporated into the secondary legislation (made under section 1 of the PSPA 2013) containing each scheme.
	Section 12(6) of the PSPA 2013 allowed a new scheme to provide for a procedure for returning the scheme to the "target cost" in agreement with employers and members (or their representatives), with a default where agreement could not be reached. Schemes set the default as a change to the rate of accrual. A consequence of this framework is that scheme regulations also require the cost of a scheme to be returned to the "target cost" when there is a breach of the employer cost cap in excess of the margins.
	Treasury regulations (made under section 12(5) of the PSPA 2013) specify the upper and lower margins as specific percentages of pensionable pay above and below the employer cost cap, and require that the cost of the relevant scheme must remain within those margins. The upper margin forms a ‘ceiling’, with the lower margin forming a ‘floor’. Where the cost of the scheme has gone beyond those margins on either side of the employer cost cap, the regulations (as required by section 12(5)(a) of the PSPA 2013) specify that the cost of the scheme must be brought back to the "target cost". The Regulations set the "target cost", which must be between the margins, in accordance with section 12(5)(b) of the PSPA 2013. The target cost is currently the employer cost cap, which, as mentioned above, was set for each scheme pursuant to the first valuations.