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IMA urges government to intervene over ASB proposals

Professional Pensions | 30 Jul 2008 | 01:00

Categories: Investment

The Investment Management Association has urged the government to consider the wider policy implications if pension liabilities are discounted using the risk free rate.

The trade body’s response comes as the Accounting Standards Board’s discussion paper proposes to replace to the double A corporate bond discount rate currently used with a risk-free rate of return, such as government gilts or a swap rate.

IMA corporate governance and reporting director Liz Murrall said: "We have already seen significant closures of defined benefit pension schemes in the private sector and accounting treatment has played its part in this.

"The proposal to discount liabilities using the risk free rate will significantly increase the valuation of defined benefit pension liabilities."

Murrall is concerned this will further aggravate closures and will have other "unintended consequences."

She added: "This is likely to reduce returns over time, and may ultimately call into question schemes' ability to meet their long term liabilities."

Categories: Investment

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