Identify which promise is being measured
In a defined benefit plan the obligation reflects expected future payments, not just this year’s contributions. Under IAS 19, the discount rate generally refers to market yields on high-quality corporate bonds; where there is no deep market in such bonds for the currency, the standard refers to government bond yields. Currency and term must suit the obligation. A higher rate reduces the present value of unchanged payments and does not by itself renegotiate the benefits employees have earned.
Use duration as an approximation
Suppose the obligation is €100 million with a modified duration of twelve years. A parallel increase of 0.50 percentage points implies an approximate decline of €6 million: twelve multiplied by 0.005 and by €100 million. This is a first-order estimate, not an actuarial valuation. If plan assets start at €85 million and separately fall to €81 million, the illustrative deficit narrows from €15 million to about €13 million, not €9 million. Ignoring asset sensitivity would overstate the improvement.
Keep accounting movements apart from funding cash
Wage increases, inflation-linked benefits, longevity and the shape of the yield curve can alter the result. Disclosed sensitivity tables usually change one assumption at a time; their separate effects cannot simply be added. Compare the accounting remeasurement with the employer’s schedule of contributions and projected benefit payments. An improving accounting position does not necessarily bring an immediate reduction in the employer’s agreed cash commitments.
Practical check
Show opening assets and obligations separately; apply each rate scenario to both where relevant, and distinguish the resulting accounting deficit from scheduled contributions.