Armed Forces Pension Scheme (AFPS) pension liabilities have risen by £25.1bn over the past year to £279.1bn, according to the 2021 annual report and accounts- 22 of the plan.
This included an actuarial loss of £19.6 billion, made up of a loss of £22.4 billion due to changes in actuarial assumptions, as well as a gain of £2.8 billion due to elements of experience arising from pension commitments.
The report also showed that there had been “significant changes” in current service costs and net expenses, with the increase in the percentage of current service costs resulting mainly from a reduction in the real discount rate.
He acknowledged that other factors such as changes in mortality rates, future income assumptions and one-time adjustment costs can also impact the percentage rate, although he clarified that he it was not a dominant factor from year to year. .
There has also been a reduction in the net cash requirement over the past three years, primarily due to the increase in the employer contribution rate from 50.4% of pensionable earnings to 65, 5% from 2019-2020.
More generally, the report found that net spending has fluctuated over recent years, with 2018-19 bringing “a significant increase” in spending due to a £1.9billion provision under the Reparations Scheme of 2015.
Although 2019-20 saw this provision reduced to £0.92 billion, two further provisions totaling £1.04 billion were made relating to the Goodwin case and the Guaranteed Minimum Pension, which offset the changes made to the recourse provision of the 2015 plan.
Work is currently underway on the plan’s next actuarial valuation, which is scheduled for March 31, 2022, and any changes to employer contribution rates as a result of the 2020 valuation are expected to take effect from March 31, 2022. April 2024.
While the cost cap assessments were put on hold following the McCloud court ruling, the government has since implemented plans for a McCloud remedy and confirmed that the cost cap mechanism calculations would be completed taking into account into account the costs of the transitional protective remedy.
With this in mind, the Department of the Government Actuary has since confirmed that the cost of the AFPS Cost Cap is within the +/-2% corridor specified in the HMT Regulations and that no benefit changes or contributions were not necessary.
The cost cap mechanism is also being reformed as of the 2020 valuation, with the new mechanism only allowing the reformed scheme, having a cost cap corridor increased by +/-3% and including economic control .
Uncertainty remains, however, as the report notes that several unions have filed a joint judicial review application against the government over the inclusion of the costs of the McCloud action in the cost control mechanism.
Although the review was cleared to be heard, the program noted that there were no further details yet on the potential timeline for a hearing.
“Even if the judicial review is successful, it is unclear what relief the court may order, and the government will then have to consider how to proceed next,” he said.
“Any attempt to predict such outcomes, such as any impact on plan liabilities, would be highly speculative at this stage.”