How is the DBO valued under IAS 19?

Answer

Mechanics

The DBO, or defined benefit obligation, is the present value of all future pension obligations, discounted using the discount rate. It is valued actuarially every year.

Inputs

Demographic assumptions: mortality table, employee turnover, retirement age.
Financial assumptions: discount rate, expected salary growth, inflation, pension trend.
Plan specifics: benefit formula and vesting conditions.

Balance-sheet item

```
Net pension liability = DBO - plan assets
```

If plan assets exist, they offset the DBO. If not, the liability equals the full DBO.

Deep diveShow more details

Discount rate

High-quality corporate bond yields, typically AA-rated, duration-matched to the pension obligation. In Europe, the 2022 move from roughly 1% to 4%+ reduced long-duration DBOs by 25-35%.

Plan assets

Valued at fair value under IAS 19, usually a mix of bonds, equities, real estate, and alternative investments.

Pitch tip

A 1% move in the discount rate can move the DBO by 10-20%. For large industrial groups with multi-billion pension obligations, this can mean billions of balance-sheet movement through OCI and major equity volatility.

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