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Pension funds consider valuation date shift

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  • Pension funds consider valuation date shift

UK - Pension funds might be able to improve their pension funding valuations by a fraction if they shift the exact date on they assess all of their assets each year away from popular target dates in December and March.

David Clare, director of HSBC Actuaries & Consultants, said his team has been talking to pension funds clients about the possibility of moving their annual valuation dates to a different date of their choosing in the year, as the firm feels assets can be over- or undervalued by high volumes of market activity on a couple of key dates each year.

More specifically, he said funds could choose to adopt a random - though pre-determined - date in the year away from 31 December and 31 March as high trading volumes which have to be completed at the end of the year can often distorted the markets being sought.

"One of the things clients could look at is if they had the opportunity to move their valuation dates, that might help because a lot are done on 31 December or 31 March," said Clare.

"There tends to be a lot of distortion because on these particular dates there is more activity. I'm not sure any other day might be better but pension funds could choose a day where asset price movements are subject to other influences, and about not placing the value on that date for accounting purposes," he suggested.

Many pension funds choose to value their assets either on the very last day of the year or on 31 March - as is the case with local authority pension funds - but moving the date by a few days either side could substantially alter mark-to-market pricing of assets, he argued.

At the same time, Clare has also suggested current funding requirements should be temporarily suspended for UK pension funds as mark-to-market pricing is not considered to be reflective of an asset's true valuation in current market conditions.

"The fundamental basis of mark-to-market pricing is based on the assumption that the market is right, but in 'non-normal' conditions and the market is unsure, linking to a system which is rigid is perhaps not appropriate.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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