[longequityreturns] [actuarial_assets]

The UK has, in fact, been almost unique in that, elsewhere, within a  pension scheme funding assessment, discounting future expected asset  proceeds is almost unknown. Even in the UK, it is fair to suggest that  the underlying logic has been misunderstood, by actuaries as well as by  others. To say, as many of us often have done, that we are discounting  future equity dividends has probably been counter-productive.

So what should we have said? We should, I think, have drawn our clients’ attention to the actuarial laws and then said that we must still make some assumptions about the  future. There will only be one future but we don’t know what it will be, which is why we need to make some assumptions.

Any assumptions made or even recommended for consideration must be  justified by complete, robust evidence, interpreted as experts.  Otherwise, one is contributing very little indeed. Interpretation is  subjective, not objective, with room for expert judgment. There is  nothing wrong with subjectivity, so long as the advisor acts  independently (not merely passing on too common groupthink) and cogently fully explains the situation so that stakeholders are empowered to  understand potential outcomes. Incidentally, there is no evidence that financial economics can be useful for long-term

For a continuing fund, expected to have a long-term future, present market  values are not at all indicative of future market values, which are, of  course, important (the scheme will not last forever). So, we should have stressed that we are estimating future market values, allowing for  assumed growth, and discounting the sale price and dividends received  until the sale.

This could easily give similar results but has a different, more defensible, ring about it. Had we been talking along similar lines, we might have  been able to avoid the FRS17 nonsense.