The discount rate used to calculate the present value in a SORP is which of the following?

• A. 2.5% per annum
• B. 1% per annum
• C. 2% per annum
• D. 3% per annum

Answer: (A)

The discount rate in a SORP is the rate used to bring future pension obligations back to their present value. In SORP accounting, this rate should reflect the time value of money and the characteristics of the liabilities, typically aligned with yields on secure, long-duration assets (often gilts or equivalent bonds).

Using 2.5% per annum as the discount rate follows a conventional long-term assumption for valuing defined benefit obligations under a SORP. It provides a balanced basis for present-valuing the liabilities, neither unduly inflating nor deflating them. If the rate were much lower, the present value would be larger; if much higher, the present value would be smaller.