[jon_spain] [misallocation]

Using “off-market” is not just a device for trying to reduce the costs. Instead, it is about assessing the cashflows, positive or negative, in a systematic manner, taking account of all the evidence available. The result for assets may be lower or higher than the published market value, with either frequently met in practice while the approach was still normal in the UK before 2000, albeit not at the same time.

Although I don't believe that we should be using discount rates at all for long-term financial entities, using “prudent” discount rates has led to a hugely severe DB economic impact. From the adjustments chart (the “discrate” website to be updated by 30 September 2020), it is reasonable to conclude that there is no way that we could even have guessed in advance by how much the discount rate would have failed to lead to a satisfactory outcome. The contracts I have considered are relatively simple, so the outcome could hardly be likely to be better for complex DB pension schemes.

Although currently suspended, the ONS "MQ5" series provided some really useful data. It is unfortunate that the replacement for MQ5 fails to provide as much data.

Over nearly 10 years [Q2 2009 to Q4 2018], I've looked at UK employers’ DB pension contributions for the private sector alone. The total paid was 333.9 b (sterling) of which special contributions accounted for 135.5 b (68% of normal).

Suppose that the discount rate was under-estimated by 1.5 % pa, a very conservative estimate. Indeed, one can easily reach 1.0 % pa from inflation alone ( That implies at least a 30% difference in capital value so that at least 100 b (private sector) was misallocated in UK. Could the heavy financial burden be a partial explanation for low UK productivity over that period?

Yes, 100 b is my personal estimate but you can choose your own yield adjustment and come to your own conclusions.