UK - Proposals to overhaul the way pension fund assets and liabilities are calculated could be the final tipping point for DB schemes, National Association of Pension Funds (NAPF) chief executive Joanne Segars has warned at a public meeting on the issue.
The major topic of discussion was on the measurement of liabilities, for which ASB has proposed the use of a risk-free rate rather than the high-quality corporate bond rate required by current accounting standards.
Segars said there were some aspects of the ASB discussion paper with which the NAPF could agree, but the risk free rate proposal was at the heart of its concerns.
She said: "We think that position is open to question. For a start, discounting liabilities at the risk free rate fails to take proper account of the opportunities available to scheme sponsors to reduce or mitigate their liabilities, for example by the changing of scheme benefits or, in the extreme case, closing their DB scheme altogether."
Segars said the use of the risk free rate was also likely to be seriously misleading in relation to the ability of the scheme to fund its liabilities, as didn't reflect the fact that schemes assets would be invested at a higher return than the risk free rate.
She also raised concern about the impact of these proposals, when considered along with other regulations on the horizon for pension schemes.
She said the Pensions Regulator's recent guidance on life expectancy projections, the introduction of auto-enrolment in 2012, and Solvency II could all add to pension schemes liabilities.
She said: "Taken in isolation, each of these events would be highly damaging to DB schemes. Taken together, and they would all come together around 2012-13, they are toxic enough to kill of the UK's remaining pension provision."
ASB chairman Ian Mackintosh said it had not made its mind up on the proposals, and would listen to the debate carefully before making any decisions.
The ASB is asking for comments on its proposals by 14 July 2008, after which a report setting out final recommendations will be issued for consideration by the IASB and FASB.
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