The Government Actuary has carried out a comprehensive review of the cost control mechanism and concluded that it cannot protect the taxpayer without making some allowance for the wider economic situation.
Based on the Government Actuary’s findings, the Government judges that it is right to now allow for changes to the wider economic situation, albeit in a limited way, to be considered in the cost control mechanism via an economic check.
Under the proposed design, a change in long-term economic factors could not in itself cause a change to member benefits. In simple terms, benefits would not be reduced if the country could afford to continue paying the current level of benefits. Similarly, benefits would not be increased if the country could not afford to pay these increases.
The Government Actuary has recommended an economic check linked to the SCAPE discount rate as, under the current methodology, the SCAPE discount rate is set based on expected long-term GDP.
The Treasury was consulting on the SCAPE discount rate methodology in parallel to the cost control mechanism consultation. If the methodology changes following the outcome of that consultation, an alternative discount rate would likely need to be applied to the economic check. The Government was seeking views on the appropriate discount rate to use for the economic check. This consultation closed on 19 August also.