The Government recognises that a wider corridor increases the cliff edge nature of the mechanism. This means that larger changes in costs can occur without any remedial action. This was highlighted in the Government Actuary’s report and the Government considered this risk carefully as part of the consultation process.
However, the Government considers that while this risk exists, a wider corridor is necessary to ensure a more stable mechanism so that breaches only occur in unforeseen and unpredictable circumstances.
After considering carefully the balance of risks, the Government believes that an estimated breach frequency of every 10 valuations (every 40 years) provides the right balance between stability (and therefore minimising cliff edge changes) and effective cost control. This can be achieved by widening the corridor to +/-3% of pensionable pay.