Hi all Can some please tell me what is the advantage and disadvantages of using a single discount rate? Thanks
Discount rate Hi rave23, Remember that a single discount rate and separate pre- and post-retirement discount rates are both approximations to a full "yield curve" approach, where every discount rate at every term is different. With this in mind, a single discount rate has the following properties: + simpler + may be more suitable for an asset-based discount rate approach where the distinction between the different assets in is not whether the liabiltes are pre- or post-retirement - may be a less accurate approximation to the full yield curve - a split discount rate may be more appropriate for a bond yields plus risk premium approach where different rates could be used to reflect different appropriately matching assets pre- and post-retirement - a single rate can be less prudent - as if split pre- and post- retirement discount rates are used (and the scheme is maturing) then more of the liability eventually is discounted at the lower post-retirement discount rate Hope that helps! Best wishes Stuart Stuart Underwood ActEd Tutor
