Pensions - Articles - LCP - Bob Scott comments on DWP consultation

 Commenting on plans to open a consultation on the smoothing of the discount rate used by UK pension funds, Bob Scott senior partner at LCP said: "Whilst the Chancellor clearly thinks there are benefits to UK plc in adopting this approach, increasing or "smoothing" the discount rate doesn't actually reduce pension liabilities.

  

 It simply assumes that you need less money to pay for those liabilities.
 "It is also worth noting that higher discount rates and lower deficits will not necessarily mean lower contributions should they be coupled with a less flexible approach from the Regulator. So whilst a scheme may "reduce" their deficit from £200m to £100m, for example, the Regulator may require the employer to fund that liability over 10 years rather than 20 years - still costing the employer £10m a year.
  

 "In recent years we have seen many employers taking the decision to close their defined benefit schemes on the basis that they cost too much. On the face of it, permitting the use of higher discount rates might have shown such schemes in a better light, but the momentum to close schemes and offer alternative defined contribution schemes is probably too late to reverse now."