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CSR: Government confirms consultation on public sector discount rate

The Government will review the discount rate used to calculate public sector pension liabilities, Chancellor George Osborne has confirmed.

The decision to consult on alternatives to the current method, which is based on AA bonds, follows the recommendation from Lord John Hutton in his wide ranging review of public service provision.

The Public Sector Pensions Commission, a pre-Hutton initiative led by the Institute of Economic Affairs and the Institute of Directors, concluded in its June report that the current discount rate provided an “artificial” calculation of unfunded liabilities.

It argued that since the rate currently used by Government is higher than it would be if it was based on index-linked gilts, it has the effect of lowering the value of the outstanding liabilities.

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