Some plan sponsors of U.K. public pension funds might have to increase their pension contributions beginning in April 2019 following a first assessment of public service pension valuations, Her Majesty's Treasury said in a written statement published Sept 6.
Changes proposed because of the valuation mean that the discount rate, which measures the current cost of future benefits paid to pension funds' participants, is set to reflect the recent forecasts for U.K. public spending made by the Office for Budget Responsibility.
Following the 2015 pension reforms, which put greater emphasis on the frequency of pension valuations and better cost oversight, the HM Treasury has been testing a new cost-control mechanism, which public-service pension funds should use beginning in April 2019, according to the HM Treasury statement.
The cost-control mechanism was introduced to offer employees protection from unexpected changes in pension costs. If the value of employees' pension benefits has been reduced due to overall pension fund costs rising, plan sponsors are expected to bring those benefits back up to the 2015 level.
"Our initial results show that the protections in the new cost-cap mechanism mean public-sector workers will get improved pension benefits for employment between April 2019 and March 2023," said Elizabeth Truss, chief secretary to the Treasury, in the statement.
However, plan sponsors must work to reduce the costs if they've increased compared to the levels observed when the public pension fund reforms were implemented in 2015, the statement said.
HM Treasury expects to present an outcome of the valuations and the cost-control mechanism's study later this year. Following the study, U.K. secretaries of state, Scottish and Welsh ministers will consult plan participants and employer representatives to agree on the steps that will be taken to bring costs to their target level. In individual instances where agreements are not reached, remedies that would increase an employer's contribution rate will be implemented.
HM Treasury is seeking input from employee representatives, public-service employers and departments and will consult the government's actuary before publishing a decision in the fall of this year.
U.K. public pension funds cover more than 5 million employees in the national health-care sector, teachers, members of the armed forces, police, firefighters, local government workers, judiciary workers and civil servants.