Mitigating the Impact of Inflation and Interest Interest Rate Surges on Your Pension Liabilities and Contributions

Recommendations from the Miravite Actuary: Anticipate and mitigate the effects of the recent surge in inflation rate and long term interest rates in your company's pension costs and liabilities as well as tax-deductible contributions Many were caught by surprise with the surge of inflation rate and long term interest rate in the year 2018. Inflation rate, which is a key barometer for setting salary increase rate, rose from 3% to more than 6%; meanwhile, long term interest rate, a key factor of pension costs and liabilities, jumped from 6% to around 9%. Higher salary increase rates will increase future retirement benefits, hence, pension liabilities as well. On the other hand, the rise in the long term interest rates has a reverse effect that may lower the yearend 2018 net pension liability. Talk to your actuary. Now is that time of the year to revisit the economic assumptions in the retirement plan's PAS19 valuation required for audited financial statements. Find out too the impact in the funding valuation and the corresponding maximum tax-deductible contributions. To anticipate is to mitigate.