Responding to IASB's call for public comment on its proposals to amend the discount rate for measuring employee benefits, Simon Banks, Principal at consulting actuaries Punter Southall, said: "What the IASB is proposing is a sticking plaster to the current regime, designed to eliminate the discrepancies (exacerbated by current markets) between the way pension liabilities are measured in jurisdictions where there are deep corporate bond markets and those where there aren’t. This should not affect disclosures for UK pension schemes, but will affect disclosures by multinationals for some of their overseas schemes. It should be noted, however, that most of the jurisdictions where UK multinationals are likely to have significant pension liabilities already have deep corporate bond markets and the aggregate affect is likely to be small.
The proposals appear to be aimed at emerging market companies where there isn’t a deep market in corporates. Though the proposals are leveling the playing field, it is probably at a level that understates liabilities in current market conditions.
By applying this sticking plaster the IASB has given itself more time for its detailed review of IAS19 which is ongoing. It has gone out of its way to say that this change in no way implies that the outcome of their detailed review will be to continue to use corporate bond-based discount rates."
Mark Davies, Investment Director at P-Solve Asset Solutions, said: "The IASB is just massaging the numbers. Two facts will still remain – (1) in the absence of any risk management the funding position (and hence balance sheet) will still be volatile as a result of the volatility of the liabilities (2) 100% funding does not mean the “problem” has gone away – as scheme 100% funded on this basis is near 100% certain to not be able to lock in at that level and remove the problem – which is surely the point of a “fully funded” position."
Ends
For further information or to speak with Simon or Mark, please contact:
Penrose Financial
Clare Murphy-McGreevey
0207 786 4834
Trustee training - Pension scheme investment (September 2010)
