UK - Small differences in salary assumptions can have massive FRS17 implications, Towers Perrin warns.
The consultant points out that a 1% increase in salary assumptions in a scheme with 50% active members could lead to a 7% fall in any surplus.
Towers Perrin consultant Charles Young argued: There may be valid differences between the salary assumptions for different employers.
Employers in a declining industry, for example, may give lower pay increases than average over the longer term.
There may also be structural changes taking place in specific companies. For example, if an employer wishes to pay more of its future employee compensation in variable form, such as bonus, and if the bonus is not pensionable, then pensionable salary increases may be below average.
Young's comments come in the wake of GlaxoSmithKline, Unilever and BP all disclosing FRS17 figures in their annual accounts for the year to December 31 but with each using very different assumptions for wage increases.
GlaxoSmithKline assumes that salaries will increase at 4%, Unilever at 3.5% and BP at 4.5%.
The accounting disclosure of the three companies also show wide differences in FRS17 surpluses and deficits.
GSK has shown an FRS17 deficit of £179m on its £3.7bn UK schemes. These schemes have a massive 87% of its assets in equities with only 11% allocation to bonds and 2% invested in other assets.
BP reported an FRS17 surplus of $2.9bn (£2bn) on its UK schemes worth $16.9bn and stated that it held 72% in equities, 15% in bonds, 6% in property and 7% in cash.
Unilever disclosed a net surplus of EUR499m (£305m) on its EUR16.4bn company pension schemes.
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