Lord Flight
Main Page: Lord Flight (Conservative - Life peer)
Lord Young of Cookham
I am grateful to the noble Lord for his welcome. I think my career is on a downward spiral rather than an upward one. On British Home Stores, that pension scheme is now in the assessment period so far as the PPF is concerned. It is confident that, should BHS fall into the PPF, it has the resources to meet those obligations. On the very substantial figure that the noble Lord mentioned, that is a snapshot of all the liabilities of the defined benefit pension schemes were they all to have to buy annuities at the present moment. Of course, that is a volatile figure. When interest rates go down, the deficit goes up; should interest rates go up, the deficit would go down and in many cases disappear. One must look at this in the long term, with the volatility of the economic cycle taken into account. A pension fund is, after all, a long-term investment.
Lord Flight (Con)
My Lords, does the Minister agree that, at present, the reported scale of pension fund deficits is hugely exaggerated because we have artificially low gilt yields rendering a discount rate of 3% or 3.5%, whereas typically investment fund returns are of the order of 5%? That is misleading. I hope the Government will consider introducing some measures to address this issue.
Lord Young of Cookham
My noble friend is absolutely right that when gilt yields fall, the deficits go up. There is an international accounting standard, to which we are obliged to adhere, that indicates how the deficits are to be valued. As I said, they are volatile; should interest rates go up, the deficits would go down. But I am grateful to my noble friend for putting it in that broader context.