Despite most of us saving into defined contribution retirement plans which provide no pension and rely entirely on investments and contributions for their outcomes, the defined benefit plan remains the source of most retirement income for the UK. Most defined benefits are paid from the “state purse” with today’s taxes paying today’s pensions, but a large amount of money remains to fund DB pensions within corporate schemes and the schemes of some Government organizations such as LGPS and the parliamentarian’s own scheme.

It’s well known that these funds are considered in deficit, though whether they are and the quantum of deficit is a matter of constant debate. There is little authoritative thinking about what constitutes adequate funding and when fresh thinking becomes available , it’s good that it gets promoted. Here is some fresh thinking. Press the link below to access this thinking, a paper published by Long Finance.

Discount Rates, Defined Benefit Pensions and their Sponsors. 

It is written by Con Keating, Iain Clacher,  Mark Freeman and Alan Duboisee De Ricquebourg. It is a deeply serious work which will repay your scrutiny if your interest is in the most economic use of capital to support our funded pension framework. I quote from the paper’s introduction on the Long Finance website

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.