Briefing Notes

Briefing Note 93 - Defined Benefits: valuing and managing liabilities

This is the third in a series of four Briefing Notes on the subject of private sector Defined Benefit (DB) pension schemes. The first explored the history of DB pensions in the UK, the volatility of funding positions, the challenges facing different stakeholders and the options available to address those challenges. The second dealt with the issue of governance, the growing complexity of the role of trustees, the characteristics of good governance and the governance gaps that exist.

This Briefing Note explores the subject of DB liabilities and in particular examines:

• The size, trend and shape of UK DB scheme liabilities;
• The mathematics of valuing today, liabilities that are due to be paid in the future;
• The particular impact of bond yields and longevity trends on pension scheme liabilities;
• Current mechanisms for controlling and de-risking liabilities;
• Calls for schemes to have more ability to manage liabilities and the issues raised by the Green Paper ‘Security and Sustainability in Defined Benefit Pension Schemes’.

This Briefing Note was sponsored by Mercer and was supported by a roundtable discussion attended by representatives from Government and industry. We are grateful to Mercer and the roundtable attendees for their support in producing this note.