From the late 1990s onwards, those UK actuaries who were inclined to believe in financial economics seemed to think that other actuaries were simply trying to produce lower liabilities than those directly linked to market values. In my experience, this was not true. While it can work out that way, it won’t always happen. The table below shows the probabilities for the initial required Off fund being lower than for MtM.

For current pensioners, with conventional gilts, the Off fund would be lower than the MtM fund either 41.2% (RPI increases) or 61.5% (no increases) of the time. This result can’t be derived by considering means. With ILGs, because the MtM discount rate is 1% pa lower than the Off discount rate, the RPI-linked Off fund is always lower than the RPI-linked MtM Fund.