Discount Rates, Defined Benefit Pension Schemes, and Their Sponsors

Long Finance (March 2021), 20 pages

21 Pages Posted: 30 Jun 2021

See all articles by Con Keating

Con Keating

European Federation of Financial Analysts Societies

Iain Clacher

University of Leeds - Faculty of Business

Mark C. Freeman

University of York

Alan J. Duboisée de Ricquebourg

University of Leeds - Faculty of Business

Date Written: March 1, 2021

Abstract

Written as a contribution to the Long Finance Meta-Commerce programme, this paper examines the way that discount rates are used for the evaluation and management of pension schemes.

The authors describe the role and function of a discount rate, and critique the methods presently in use for calculating discount rate determination, including those contained in the Occupational Pension Schemes (Scheme Funding) Regulations 2005 (OPS (SF) 2005). They then go on to propose a method of discount rate determination which could be used for establishing the accrued value of the liabilities of the sponsoring employer (the Contractual Accrual Rate (CAR)) which has particular merits for the management of Collective Defined Contribution schemes. The paper concludes with discussion of Collective Defined Contribution schemes, followed by consideration of some practicalities for the introduction of the CAR.

Keywords: Discount Rates, Defined Benefit, Pension Schemes

JEL Classification: J32

Suggested Citation

Keating, Con and Clacher, Iain and Freeman, Mark and Duboisée de Ricquebourg, Alan J., Discount Rates, Defined Benefit Pension Schemes, and Their Sponsors (March 1, 2021). Long Finance (March 2021), 20 pages, Available at SSRN: https://ssrn.com/abstract=3869711

Con Keating (Contact Author)

European Federation of Financial Analysts Societies ( email )

Iain Clacher

University of Leeds - Faculty of Business ( email )

Leeds LS2 9JT
United Kingdom

Mark Freeman

University of York ( email )

Heslington
University of York
York, YO10 5DD
United Kingdom

Alan J. Duboisée de Ricquebourg

University of Leeds - Faculty of Business ( email )

Leeds LS2 9JT
United Kingdom

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