Transparency data

20 September 2022: Civil Service Pensions 2015 Remedy Accounting Officer assessment

Published 29 September 2022

Accounting Officer Memorandum: 2015 Remedy Programme.

An Accounting Officer assessment for the 2015 Remedy Programme was conducted in line with the Cabinet Office commitment to publish Accounting Officer Assessments for Government’s Major Projects. This Accounting Officer assessment considers the four standards of regularity, propriety, value for money and feasibility.

Background and context

In 2018 the Court of Appeal ruled that the transitional protection offered as part of the 2015 pension reforms was discriminatory on the basis of age. The Chief Secretary to the Treasury confirmed that all public sector schemes must legally introduce a remedy to respond to the Court of Appeal judgement (commonly referred to as McCloud).

The Remedy applies to all public service pension schemes, with central coordination across Health, Education, Justice, Armed Forces, Police and Fire and Local Authorities, to encourage consistency in the delivery approaches and timelines. Cabinet Office on behalf of the Prime Minister, acts as the scheme manager for the Civil Service Pension Scheme and is working with the Treasury in development of policy and secondary legislation for the benefit of all public service schemes, as the exemplar department.

In response to the judgement, the Cabinet Office has mandated the 2015 Remedy programme to coordinate the introduction of a series of necessary changes across the Civil Service Pension Scheme (CSPS). The programme has two key strategic outcomes, firstly phase one to end ongoing discrimination which was successfully delivered in April 2022 and secondly phase two to rectify any discrimination that may have occurred, which is due to be implemented from October 2023.

CSPS has 1.6m members, of which 420,000 are in scope for the remedy solution. This spans present civil servants who continue to accrue benefits, members who have left the Civil Service but have preserved benefits in the scheme, and pensioner members, both fully and partially retired. Typically engagement in pensions is low and this is a very diverse population with varying degrees of complexity in personal circumstances. Changes to benefits will also include requirements for some members to revisit and make retrospective amendments to their tax affairs and therefore clear and accurate communications along with support for members is important. The remedy period spans April 2015 to March 2022 and the 420,000 members will be invited to choose, at the appropriate time, if they wish to have their pension benefits for this 7 year period calculated on the basis of their pre or post 2015 scheme benefits.

The programme is 2 years into a 4 year schedule, with the FBC approved by the HMT spending team in February 2022. The programme was initiated in 2020 and has successfully delivered phase one in April 2022; preventing any ongoing discrimination. Phase two is on plan to deliver by October 2023 and this will see the commencement of new processes that will offer the choice, at the point of retirement for the current workforce and preserved members, and retrospectively for our retired members.

The programme has an overall implementation budget of £33.5m and an expected closure date of Autumn 2024. Full business case approvals are in place and commercial agreement secured with the incumbent supplier, which includes a reduction in the cost to deliver necessitated via a reduced contractor rate card.

To note, the FBC runs till programme closure.

Assessment against the Accounting Officer standards

Regularity

Legal Powers

Following public consultation, the Public Sector Pensions and Judicial Office Bill received Royal Assent in March 2022. This provided the necessary legislation for the successful completion of phase one of the programme, effectively bringing an end to any ongoing discrimination. This was achieved two fold, firstly 45,000 protected members were moved into the reformed scheme and secondly from the 1st April 2022 onwards CSPS only operates the reformed ‘alpha’ scheme to ongoing accruals.

Work is now underway on HMT directions that are due to be published at the end of 2022, these will pave the way for the enabling work in support of the secondary legislation to provide the legal frameworks for phase two. Scheme level consultation is planned for early 2023 and this will be followed by the laying of the Statutory Instrument in August 2023.

Ministers, Scheme Advisory Board and Civil Service Pension Board have been consulted throughout as well as Cabinet Office and HMT lawyers.

The McCloud remedy has its legal basis in the Public Service Pensions (and Judicial Offices) Act 2022.

Treasury authorisation

The Cabinet Office investment board, under the stewardship of the Chief Financial Officer has scrutinised all three business cases for the 2015 Remedy programme, thus providing assurance in terms of commercial diligence and affordability.

All three business cases have subsequently been considered and approved by the Treasury spending team with the FBC approved on 19th January 2022. The programme sits outside of SR funding, with budgets drawn from the administrative levies collected for the management of the pension scheme. To note, NAO undertakes annual audits on the scheme accounts.

To date the programme has delivered the plan under budget and a recent GIAA assessment found adequate programme controls in terms of financial management processes and systems.

The programme has the existing budget under the 1972 Superannuation Act and annual Estimates process and specific clearance from the CO to spend this money on the programme.

With regard to regularity I conclude that the 2015 Remedy Programme has the necessary Ministerial oversight, parliamentary authority, Treasury authorisation and is well placed to continue to deliver within the parameters of the approved budgets.

Regularity assessment - Met

Propriety

Standards

A key area of focus for this programme is the commercials, particularly as the contract was awarded to the incumbent scheme administrator. I am satisfied that broader options were considered, with expert advice sought from Commercial and Crown Commercial Service specialists. In finalising the commercials, OJEU standards and thresholds have been adhered to.

Given that the catalyst for this programme is to redress age discrimination, I am reassured that both HMT and Cabinet Office have undertaken equality impact assessments as an integral element of the consultation process and also that data protection impact assessment considerations have also been analysed, given the sensitivities of handling the Civil Service workforce data.

Controls

This programme operates within the organisational change portfolio governance and there is also additional oversight from both the Civil Service Programme Board and Cabinet Office Assurance and Risk Committee (COARC).

Given the high level of senior interest, there are also regular briefings and updates to Ministers and updates have been provided to the former and current Head of the Civil Service.

With regard to propriety, it is my view that the 2015 Remedy Programme has the appropriate level of strategic oversight and organisational transparency. I also find that key areas of potential vulnerability namely commercials, data and further unintended discrimination have been given sensible consideration and scrutiny.

Propriety assessment - Met.

Value for Money

Case for change

In this instance, doing nothing is not a viable option as this would result in the scheme not being legally compliant. The primary legislation mandates that all public service schemes must offer members with a choice of benefits for the 7 year remedy period, from the 1st October 2023.

If the Cabinet Office made a decision not to continue with the implementation of the 2015 Remedy programme the Civil Service would be in breach of the court decision. It is highly likely that further litigation would follow, trade unions would escalate significant concerns and with the current cost of living pressures members would express their dissatisfaction in the delay to implementation, which for some would provide increased pension benefits.

Economic case

A comprehensive options appraisal exercise was undertaken, supported by economists, which considered competition and in-house options fully. The preferred approach however was to leverage the incumbent suppliers as a rapid response was needed, with the stability of known processes and systems.

To safeguard value for money, as part of the negotiations with the incumbent scheme administrator three initiatives were agreed upon:

• A significantly reduced rate card
• Options for outcome based payments
• Strategic partnerships with 3rd parties/industry experts

The original cost estimate at the mandation stage was £57m as per the approved SOC. In the intervening period the implementation costs have incrementally reduced, with the OBC estimating £41m and the most recent FBC now forecasting the cost of implementation at £33.5m.

In the two years since mandation there has been a real term reduction of 40% in the delivery costs, demonstrating the program’s focus in securing value for money on behalf of pension scheme members and the Exchequer.

With regard to value for money, I find the case for change compelling and the consequences of not successfully delivering the programme clearly stated. There is good evidence of costs being driven down and the funding provision is realistic and secured.

Value for Money assessment - Met.

Feasibility

Deliverability

This is a mature programme that has successfully delivered phase one in the spring of 2022. Design and build work is currently on plan for Phase 2 delivery, which is to commence by October 2023 with programme closure planned for August 2024. It is led by an experienced SRO and supported by a board that includes HMT and IPA representatives. Given the track records, current momentum and capability of the senior delivery team, I am reassured that the foundations are in place for success.

It is encouraging to note that the Cabinet Office programme team forms part of a wider public service network, leading as the exemplar on legislation and regulations and sharing insight, best practice and collateral with similar programmes across the breadth of the public sector.

Significant risks

Whilst the programme is currently stable and well placed for success, the implementation will impact 56% of the current Civil Service workforce and in addition to the scale of the population, pensions is a complex, technical and heavily regulated sector.

There are a number of risks that will require constant oversight with the three most significant in my view being:

• The choice exercise is emotive and difficult to communicate given engagement across the membership is low and passive. Large scale activities to enable the retrospective choice exercise, are likely to generate noise and some dis-satisfaction that will need to be carefully managed.
• Data is also an area that will need close supervision, as is always the case with payroll data that spans back generations. The choice exercise necessitates new calculation routines and great care will be needed to ensure data is robust and revised pension benefit calculations accurate. This is all the more important when considering the significance of the ultimate financial decisions the members will be taking.
• The programme has a further two years to run and maintaining a consistent core delivery team across both the Cabinet Office and our suppliers will be paramount to success. It should be noted that the scheme administration contract is being re-tendered on an adjacent timeline.

Affordability

The cost to implement the 2015 Remedy programme is funded by a levy on employer pensionable pay contributions. Given that this is a 4 year delivery we have liaised with OBR to consult on workforce pay predictions and workforce projections; based on advice I am reassured that there will be sufficient funding within the pension scheme to enable the completion of the programme.

With regard to feasibility, I acknowledge that this is a significant undertaking that sits within a complex environment, with several key areas of risk that will require constant oversight. I am however reassured by the successful execution of phase one in April 2022. I am also content that there is sufficient funding available to complete delivery.

Feasibility assessment - Met.

Conclusion

I am satisfied that the Civil Service Pensions 2015 Remedy Programme relies on clear legal powers, meets the standards in Managing Public Money and accords with the generally understood principles of public life, representing value for money for the Exchequer as a whole, and is feasible to deliver.

This summary will be published on the government’s website (GOV.UK). Copies will be deposited in the Library of the House of Commons, and sent to the Controller and Auditor General and Treasury Officer of Accounts.

Alex Chisholm

Permanent Secretary, Cabinet Office

20 September 2022