Friday, April 04, 2014

Pension deficits and La La accounting

I have posted this comment on the "Inside Housing" website in response to this article on "deficits" in the Social Housing Pension Fund (SHPS).

"Hang on, the so called "deficit" in SHPS is mostly La La land accounting.  The "deficit" is based on the price of gilts which are at a 200 year low. It is a completely ludicrous way to measure liabilities and bears little relationship to any real deficits.

If you had to pay off your home mortgage by investing in gilts at current rates you would very soon be bankrupt and homeless. Why is your pension treated so differently?

Due to recent changes in the gilt market and good investment returns the SHPS deficit will now be probably hundreds of millions pounds less.  The irrational volatility of these "deficits" is a real concern for schemes and employers but the fault lies in the yardstick, not what it measures.

SHPS should be working with its stakeholders to take on the government and accounting bodies for their failure to do anything to defend modern sustainable funded defined benefit schemes from the "Alice in Wonderland" regulation it currently suffers from.
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