Desperate to encourage economic growth, the government is consulting on whether to allow pension schemes to take a long-term view of gilt yields when calculating discount rates for valuing future liabilities, otherwise known as smoothing. Writing in Financial News this week David Norgrove, Chairman of PensionsFirst and former Chairman of The Pensions Regulator, argues that for smoothing to make sense you must believe that, among other things, the move will reduce costs, drive investment and not set a dangerous precedent. Yet he stresses that there are deep flaws in this thinking. Shareholders and the economy would be better served by cash rich companies doing more to de-risk their schemes, not less. In the past 10 years deficit contributions have totalled around £175 billion, and deficits have hardly changed. Norgrove concludes that we’re well into the end game for many pension schemes and it’s time to recognise that.
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