ABSTRACT
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C ORPORATE SPONSORED DEFINED BENEFIT (DB) pension schemes have recently foundthemselves in hot water. Accounting practices that led to over-exposure to equity markets, increases in longevity of the scheme participants and low interest rates have all
contributed to the majority of schemes in the EU and the U.K. finding themselves
underfunded. In essence, a DB scheme promises to pay its participants an annuity at
retirement that gives them a pension equal to a proportion of their final salary (the
proportion depending on the number of years of service). Therefore the responsibility to
meet these promises (liabilities) rests firmly with the scheme’s trustees and ultimately with
the corporate sponsor.
