Pensions accounting experts have said that the ASB plans to impose a risk-free rate on companies' pension liability discounts is 'nonsensical.'

The Pensions Research Accountants Group made the criticism in a response to an ASB discussion paper on accounting for pensions.

'The application of a risk-free rate for accounting purposes would probably result in an apparent profit being made when a buy-out is agreed as the buy-out providers use a lower discount rate. This is clearly nonsensical as it implies that it is more expensive for the employer to run a scheme than a third party which is intending to make a profit.'

PRAG also voiced concerns about pension scheme liabilities being calculated at fair value because contribution levels would have been in place well in advance of the adjusted figures being worked out:

'A further concern expressed by PRAG is that the fair value of the liability will differ
to the value already communicated to members and the value being used by the
trustees to agree the contributions with the employer. This can only confuse members rather than provide valuable additional information.'

Further reading:

Risk-free rate 'not appropriate'