Written statement on Public Service Pensions: SCAPE discount rate - Mar 30

Chief Secretary (John Glen): “SCAPE” (superannuation contributions adjusted for past experience) is the process for setting employer contribution rates at valuations of unfunded public service pension schemes. As part of the SCAPE process, the SCAPE discount rate is used alongside many other factors such as earnings changes, changes to life expectancy and demographic assumptions to determine the appropriate employer contribution rate. Valuations as at 31 March 2020 are currently underway and will result in new employer contribution rates which will be implemented from April 2024.

The current methodology for setting the discount rate, based on the OBR’s forecast of long-term GDP growth, was adopted in 2011. At the time, the Government expressed an intention to review the discount rate methodology every ten years. A 2021 consultation met this intention and sought views on the most appropriate methodology for setting the SCAPE discount rate.

The Government has today published its response to the June 2021 consultation on the methodology used to set the SCAPE discount rate and has concluded that the existing methodology best meets the balance of the Government’s objectives for the SCAPE discount rate, and therefore does not intend to modify the methodology. [1]

The SCAPE discount rate to be used as part of the ongoing 2020 valuations will therefore be based on the expected long-term GDP growth figures, published by the OBR in July 2022. Based on these figures, the new SCAPE discount rate is CPI+1.7% p.a.

The Government is aware that the updated SCAPE discount rate will generally lead to higher employer contribution rates for most unfunded public service pension schemes resulting from the 2020 valuations. In recognition of the cost pressure that an increase to the employer contribution rate would bring to existing departmental budgets, the Government has committed to providing funding for increases in employer contribution rates resulting from the 2020 valuations as a consequence of changes to the SCAPE discount rate; this commitment is for employers whose employment costs are centrally funded through departmental expenditure. These funds will be used to pay for employer contributions and therefore will contribute to meeting the costs of public service pensions provision which means this will be cost neutral for the Exchequer.

[1] https://www.gov.uk/government/consultations/public-service-pensions-consultation-on-the-discount-rate-methodology