UK - Local authorities are to have different criteria for funding liabilities under FRS17 than private companies.
Under proposals put forward by the Chartered Institute of Public Finance and Accountancy (CIPFA), local authorities will be able to use a notional pensions reserve allowing them to measure liabilities over a longer term than private companies.
CIPFA policy and technical director Vernon Soare defended the policy against critics who have said authorities are using different criteria in a bid to avoid being forced to put up council taxes to cover liabilities under FRS17.
Soare said: “If a local authority wants to go for one extreme and fund it now, it will either have to do it through central government taxation or raise it through council tax. But if you take the view that local authorities are going to be around for a long time to come and that the calls on the pension scheme will only come as people retire, then the liability should be funded over a much longer period.”
Soare said local authorities in general only have two sources of income, a central government grant which roughly accounts for 80% of its income, with the other 20% raised through council tax. He added: “This is not a question of ‘will local authorities fund their pension liabilities?’, because they will. It is a question of over what time period.”
Chairman of the Faculty and Institute of Actuaries pensions board Peter Tompkins said: “If you are working for the public sector, you have reasonable confidence that it is a good guarantor and your pension will be safe. In the private sector, it matters because your company might go out of business. That is why FRS17 matters so much more in the private sector.”
Lincolnshire County Council assistant county treasurer David Forbes said: “FRS17 is not going to affect the local level of council tax. It is going to be a cosmetic balance sheet entry in the local authority accounts. Local authority balance sheets, like many public sector balance sheets, do not have a lot of significance.”
The Accounting Standards Board, which will ultimately decide whether local authorities should adopt the CIPFA proposals, will give its view on them in March.
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