UK - Uncertainty created by more volatile pension accounting figures is set to turn many more companies away from final salary provision, according to a new study.
According to Aon Consulting in its latest briefing the likely impact of the “more prescriptive” accounting standard FRS17 for pension costs will be “volatile” accounting figures that could be countered by a greater exposure to bonds. Donald Duval, head of Aon’s actuarial and benefits practice said: There are a number of ways that the impact of FRS17 on a company’s accounts can be mitigated.
However, the choice is dependent on the scheme’s circumstances, and each method will have its own advantages and disadvantages. In addition, the ways to mitigate the impact of FRS17 are not the same as the existing ones used to mitigate the impact of SSAP24.
FRS17 specifies how companies must report the cost of providing pensions and other post-retirement benefits for their employees, replacing the existing SSAP 24. The new standard will be fully operational for company accounting periods ending on or after June 23, 2003.
However, the firm also adds that any volatility introduced by FRS17 may be reduced by a changed investment strategy, such as greater investment in bonds, although this may increase the pension expense.
The impact of discretionary pension increases is also dealt with in the briefing. Approaches are considered as to how any immediate costs can be mitigated. There is also a comparison between SSAP24 and FRS17, and transitional arrangements regarding the new standard. By Madhu Kalia
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