Pension accounting rules 'bizarre' says regulator

David Norgrove, chairman of the pension regulator, has described as 'bizarre' accounting rules which have unintentionally linked discount rates for calculating liabilities to the fortunes of the distressed financial sector.

His remarks coincide with a study showing pension liabilities of the UK’s 350 biggest companies are understated by about £160bn because of the rules, the Financial Times reports.

During the financial crisis, pension schemes have been using the higher interest rates on corporate bonds as their discount rates, which is having the misleading positive effect of pushing down liabilities.

'It seems perverse that deficits measured in accounting terms seem to have gone down because their liabilities have gone down,' Norgrove said. 'We have got a bizarre situation. We don’t have a good handle on pension deficits.'

Further reading:

Corp UK faces ₤45bn demand from pension trusts

Read the Financial Times story