UK - Most UK finance directors are unaware of the effect the European Union Pension Funds Directive, which sets out a new regulatory framework for defined benefit pension schemes, will have when it comes into effect a year today says ABN AMRO.
ABN AMRO says the potential sharp increase in funding contributions to directors’ DB schemes may have a significant impact on company finances. The UK government has been slow to clarify how some of the Directives’ requirements will be applied, it said in a release.
“With only 365 days to go, UK companies are still waiting to see the detail on two of the key requirements – the prescribed assumptions for calculating technical provisions and the maximum period over which any resulting pension deficits can be removed,” said ABN AMRO head of actuarial, Francis Fernandes.
“With most finance directors and corporate treasurers deciding on their budgets for the year ahead, they need to be aware of the potential cash calls as soon as possible – for some, the hike in contributions may simply be too much to absorb.”
The Directive, which must be adopted by Member States by September 23, 2005, requires that enough money is set aside to provide for the pension scheme benefit payments. If deficits arrived, they must be removed over a limited period.
Global head of pension fund coverage at ABN AMRO, Keith Jecks (pictured), said many UK companies seem pre-occupied with the levies payable under the proposed Pension Protection Fund, rather than an increase in contribution rates required to cover technical provisions.
“At one extreme, you might interpret ‘technical provisions’ as reserving for pension promises based on risk-free returns – which would increase deficits well beyond those we have seen under the accounting standards FRS 17,” he said.
“There will also be a double whammy impact, if large deficits then have to be eliminated over a very short period. The UK government needs to tell companies as early as possible what is expected from them.”
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