PRAG pans 'nonsensical' ASB pension plans

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’