FN: Do pension funds assume too much? No-one can decide

23 June 2011

"We have ended up basing the entirety of our trillion-dollar pensions industry on it, and from California to London to Amsterdam, regulators, accountants, actuaries and everyone else are still arguing over the results."

The latest bout of disagreements has arrived in oddly co-ordinated fashion. The International Accounting Standards Board (which sets the accounting rules for tens of thousands of companies worldwide) and the Dutch pensions industry (which manages €800bn on behalf of 18m Dutch people) announced they were heading in entirely the opposite directions. It is assumption that is at the root of the problem. Pensions accounting involves a large amount of assumption, inevitably, since it is trying to forecast the size of bills that stretch decades into the future. But some people are of the opinion it contains rather more assumption than is necessary - or beneficial.

Under the reform proposals - which have been agreed by government representatives, unions and employers, but still need to be approved by Parliament and some union members - pension funds are to factor their investment mix into their solvency calculations. Riskier investments imply a smaller liability, because you might expect to make more money off them in the long-term - or so the argument goes.

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