Public service pension schemes (PSPS) are a crucial and valued part of public sector remuneration. One of the valuable features of these defined-benefit schemes is provisions to ensure that accrued pensions of active and deferred members are adjusted at a rate set out in statute that is not dependent on investment returns. Depending on the scheme of which they are a member, the accrued pension of an active member of the career average revalued earnings (CARE) PSPS introduced from 2014 and 2015 is revalued each year by an amount equal to the change in CPI, CPI+X% or average weekly earnings (AWE).
The process for this revaluation is set out at section 9 of the Public Service Pensions Act (PSPA) 2013. This legislation specifies that it is achieved through a Treasury order made in each year for the period, which
“may determine the change in prices or earnings in any period by reference to the general level of prices or earnings estimated in such manner as the Treasury consider appropriate.”
In practice, accrued pensions of active PSPS members have been revalued in April of each year based on Office for National Statistics (ONS) estimates of the September-to-September increase in CPI for the previous year for most schemes, or based on ONS estimates of the September-to-September increase in AWE for the 2015 firefighters’ pension scheme (FPS) in England and its devolved equivalents and the 2015 armed forces pension scheme (AFPS). ONS practice is to publish each year a provisional AWE figure for the September-to-September increase in November, followed by a revised figure in December.
During work leading up to the laying of the Treasury revaluation order published in April 2023, it was noted that the Treasury revaluation orders for 2021 and 2022 specified an AWE figure based on provisional ONS figures, rather than revised ONS figures, which had been used in previous Treasury revaluation orders from 2015 to 2020. Although the legislation setting out the revaluation of PSPS does not specify a figure of AWE growth to be used for the purposes of revaluation, it is the Government’s view that the previous practice of using revised ONS estimates should have been maintained in 2021 and 2022. The Government thus intend to correct the position affecting those currently active, deferred and pensioner members who were in active service in one of the affected PSPS at any point between 1 April 2020 and 31 March 2022. This will ensure all members receive the correct amount of pension. For a member who was in active service throughout the entire period, their accrued pension up to 31 March 2022 will be up to around 0.6% larger following this change. This change in pension value will not affect the benefit entitlement of those who were active members of the legacy pension schemes for the armed forces or firefighters during the years in question if they choose legacy design benefits under the upcoming choice exercise to remedy the discrimination identified by the McCloud/Sargeant litigation.
The corrected pension benefit amounts for affected PSPS members will be provided through scheme regulations made under section 3(2)(a) of the PSPA 2013. As these regulations will be specific to the affected schemes, they will be consulted on and legislated for by the Home Office and the Ministry of Defence for the 2015 FPS England and the 2015 AFPS respectively. It will be for the Scottish and Welsh Governments to make similar changes to firefighters’ pension schemes in those countries. The FPS in Northern Ireland is fully devolved; therefore, it will be for the relevant authorities there to take forward any similar change for the FPS in Northern Ireland.
The revised position and regulation change announced in this statement will only uplift an affected PSPS member’s accrued benefits. The Government intend to consult and legislate to implement these changes as quickly as is feasible.
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