UK - Companies can mitigate the brutal and blunt snapshot FRS17 gives of pension liabilities by give more scheme details in their accounts, Bacon & Woodrow claims.
It believes companies should illustrate that pension fund deficits are only a snapshot of shifting asset values throughout the year.
Bacon & Woodrow associate Raj Mody said: “By giving more information you are actually giving the user of the accounts a better understanding of how sensitive the surplus or deficit position is.”
Mody suggested that companies could introduce a bounce factor which would make clear what percentage improvement in equity values would be required to revert the FRS17 funding ratio to 100%.
Graphical illustrations of the FRS17 position over the whole of the year could also overcome the unpredictability of having to state a position that only reveals a snapshot of the company’s pension funding level.
Mody explained: “If you take a company that was reporting at the end of September 2001– a particularly tough time for pension schemes – they could have been well below the 100% mark but could have been above it for the majority of the 12-month period to that time.”
Standard Life Investments head of UK pensions Stephen Acheson agreed: “It is important for companies and investors to understand the cost of the pensions promise but FRS17 is a bit brutal and blunt.”
“What you do need is careful interpretation of the numbers and therefore more disclosures on the sensitivities of the numbers, to give some idea of what effect market movements will have on the fund.”
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