UK - The Accounting Standards Board (ASB) has been criticised by the industry for suggesting changes to existing accounting methods which could increase FTSE 100 pension deficits by around £80m (€107m).
The proposals outlined by the ASB yesterday included suggestions to change the basis of the discount rate used in calculations to government gilts, rather than corporate bonds, which would increase the value of liabilities.
But Marcus Hurd, senior consultant & actuary at Aon Consulting, said the proposals were "another dagger in the side of final salary pensions schemes, which are already struggling to survive".
The consulting firm said its calculations suggest the changes proposed by the ASB, in particular the change in the discount rate, would add approximately £120bn to the combined deficit of the UK's 200 largest pension schemes.
"The proportion of schemes in surplus would fall massively, from 40% to 2%, causing widespread panic and misunderstanding," warned Hurd.
In addition, he claimed the changes would increase the profit and loss charge for new benefits - known as the service cost - by 40%, leading to increased pressure on the employer to close final salary schemes to future accrual.
Hurd added: "These changes do not affect the underlying obligations of the company to the scheme, nor do they improve security for pension scheme members. In reality, all the proposals do is add to the headache already faced by companies and they fast forward the gradual demise of the UK's final salary pension schemes."
Brian Peters, partner at PricewaterhouseCoopers, agreed the changes could "accelerate the closure and wind up" of DB schemes, and warned it would also have a "knock-on impact" on funding negotiations with trustees and for the clearance of corporate transactions from TPR.
In addition, Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), claimed that while the body agrees with the ASB that future salary increases should be excluded from calculation, she admitted there is "a risk that these proposals may undermine employers' willingness to continue to sponsor DB schemes".
Hymans Robertson claimed the proposals would have "disastrous consequences" for the future of workplace pensions, as the "increasing complexity" of pension disclosures is already reaching "breaking point" and the ASB proposals would increase the FTSE 350 deficit by £90bn.
That said, Martin Potter, partner at the actuarial consulting firm, considered the proposed changes to be "too little, too late" as removing the requirement to account for future salary increases would only "go a little way to offset the huge increase in liabilities from moving to gilt yield discounting of liabilities".
"But in the UK's situation of rapidly maturing pension liabilities this does smack of rearranging the deck chairs on the Titanic," he added.
If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com
No comments yet