Will UK follow lead of Sweden and Denmark in allowing pension funds and insurers to adjust valuation discount rates?

by Dr. Ros Altmann

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Ros Altmann comments on today's announcement by Denmark:

"I am delighted to see that both Sweden and now Denmark have decided to ease rules for discount rates that must be used for pension funds and insurance businesses. This is a pragmatic and sensible move which finally recognises that long term risk-free bond yields are at unusually low levels due to exceptional factors which are driven by short-term economic issues. These short-term influences should not interfere with the running of very long-term liabilities.

"I hope that UK authorities will consider following these practical examples and allow UK pension funds and insurers to use a longer term average measure of government bond yields for valuation purposes in the current exceptional conditions or adjust the discount rates in another manner.

"It would be extremely ironic if the measures designed to produce short-term economic growth, actually end up undermining companies with longer term liabilities that would be sustainable once interest rates normalise."

Dr. Ros Altmann
13 June 2012

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