Anthony Hilton's recent article on DB deficits has got everyone talking about how they should be calculated. However, Helen Morrissey doubts she will see any consensus any time soon.
Evening Standard journalist Anthony Hilton's recent article on how defined benefit (DB) deficits should be measured has got everyone in a fluster.
In his article Hilton proposed an alternative approach to calculating pension deficits. He disagrees profoundly with the current practice of calculating them with reference to gilts – a position he says amounts to "a misallocation of capital on a truly heroic scale."
Instead he believes deficits should be calculated with reference to higher returning assets. He asks why it is that if schemes are making average investment returns of around 7%, deficits are calculated with reference to something making 2% or less.
However, while we have people approaching the problem from so many different angles I despair of any potential solutions being found any time soon.
The article has provoked a flurry of comment, some of which has been printed in this week's issue (see pages 10 and 12).
Redington's head of DB Dan Mikulskis disagrees, saying that Hilton's approach exposes schemes to unnecessary risk and that the Pension Protection Fund could find itself having to deal with more entrants with higher deficits.
Brighton Rock's head of research Con Keating in turn disagrees with Mikulskis and puts forward another potential solution entirely.
The issue of how to measure deficits most effectively has never been so topical and I'm sure we will hear many more alternative solutions proposed over the coming days.
However, while we have people approaching the problem from so many different angles, I despair of any potential solutions being found any time soon.
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