http://www.scottish-orienteering.org/soa/page/east-of-scotland-championships-2011/

In your third paragraph, you try to distinguish between “liabilities” and the “present value of those liabilities”. You wrote:

“The liabilities have not changed an iota because of any change in bond yields. The pension schemes are still on the line for the same payments in the future as they were. The only thing that has changed is one estimate of the present value of the liabilities, in other words how much money should be set aside now to pay the liabilities in the future.” [Emphasis added]

I have two challenges for you. The first is that the distinction is an artificial one which would not be recognised by the man or woman on the street (or the finance director in their sumptuous office). The second challenge is that the FT wasn’t writing about the pension scheme’s liability. The FT was writing about the company’s liability – and the company’s liability has, indeed, reduced.

Take the second point first. The company’s liability is to ensure that the scheme is funded up to its technical provisions (or have a recovery plan in place to achieve that). Changes in yields lead to a change in the technical provisions and hence a change in the company’s liability. To the finance director, this is a very important distinction.

But, even without this distinction between the scheme and the company, I would still invite you to reconsider your point. In practical terms, an entity doesn’t just have a liability to pay money out on a series of future dates; the entity has some form of legal obligation (which varies depending on its legal status) to raise the funds to meet that liability. If yields go up, currently held assets can be invested at a greater return and the amount of additional assets which need to be raised is reduced.

In short, the concept of a liability “to pay £P at time T” is an incomplete one, other than in theory. In practice, there is (normally) a liability to put oneself in a position to be able to pay £P at time T. Higher yields between now and time T will normally make that liability less burdensome.