UK - Liability-driven investment is "fundamentally misconceived" because it hedges low interest rates which in fact increase corporate profitability, a radical report finds.
The report - Don't stop believing: The state and future of UK occupational pensions - argued falling interest rates hurt pension schemes because they raise the present value of liabilities but conversely they increase corporate profitability and hence a company's ability to support the scheme.
Author of the report, Brighton Rock head of research Con Keating (pictured), explained: "LDI is hedging interest rate exposure in the scheme. We are talking about improving scheme health and security. The strength of a sponsor determines how well a scheme is run and low interest rates strengthen a sponsor. So why do you want to hedge something that makes the company more money?"
Elsewhere, the report - officially launching on Wednesday (28 September) - advocated an unfunded occupational defined benefit scheme model it said is very affordable and much cheaper as the affordability of pensions rests directly upon their performance - it aligns the interests of employee and employer.
The cost competitiveness of the UK corporate sector and its capital structure would be radically improved and employee security is assured by private sector pension indemnity assurance covering sponsor insolvency risk.
"The cost is a small fraction of costs currently being incurred," it said.
Keating added: "Funded schemes should be doing everything they can to close and limit costs. If the sponsor doesn't go bust pensions get paid so let's insure schemes against the sponsor going bust in the way the pre-pensions guarantee in Sweden does it."
In addition, Keating said accounting standards understate the true position and introduce "spurious volatility to financial statements and those of their sponsor employer".
This echoes National Association of Pension Funds chairman Lindsay Tomlinson's call that UK pension provision is being undermined by accounting standards because they introduce short-term volatility to scheme liabilities.
PwC, KPMG, EY and Deloitte must break up their consultancy and audit businesses into distinct firms to provide greater focus on the "most challenging and objective audits", the competition watchdog has said.
The Department for Work and Pensions (DWP) has released its first batch of guidance setting out how the guaranteed minimum pension (GMP) conversion legislation may be used to resolve unequal payments.
This week's top stories include the government spending £800,000 on a Gogglebox advert and MPs writing to The Pensions Regulator about its engagement with the Railways Pension Scheme.