Accounting Standards & Discount Rates In DB Pension Scheme Evaluation: The Contractual Accrual Rate

Find out more on our website: https://bit.ly/3qlNgpx In this webinar, we examine the role of discount rates in IFRS19 (Employee Benefits) in the reporting of defined benefit pension schemes. We consider the fundamental properties of discount rates and uncertainty and go on to demonstrate that the approach in the current standard produces liability values which are counterfactual to the true liabilities of a DB scheme. Crucially, as a result of the decades-long declines in interest rates, the standard has and continues to overstate the magnitude of pension liabilities. We consider a range of alternate methods which are in use, e.g. those utilising the expected return on assets as the discount rate, and show that all of these rates are exogenous and produce counterfactual values for liabilities. We finish by proposing a new method, the contractual accrual rate (CAR), to evaluate pension liabilities. This rate is endogenous to the pension contract(s) and accurately reflects the accrued value of pension liabilities of the scheme’s sponsor employer. Speaker: Dr Con Keating In the seven years since retiring, Con has restricted his advisory activities to projects for friends, former colleagues, and old clients. He remains active in a number of pro bono roles, including chairing the Bond Commission of the European Federation of Financial Analysts Societies. For the past five years, with Professor Iain Clacher, he has been researching the design and operation of collective defined benefit pensions schemes. He has taught courses as a visitor, at undergraduate and post graduate levels, at universities in the UK, US, Asia and Europe, and continues to supervise two doctoral candidates. The subjects taught and researched have included international and development finance, financial economics, mathematical finance and actuarial science, risk management and pensions design and modelling.