UK - New accounting standard FRS17 could prove the final straw for some final salary schemes - threatening the pensions of thousands of UK workers, according to the National Association of Pension Funds (NAPF).
In its latest survey of members, the NAPF found that over 75% of companies offering final salary pension schemes were less likely to do so because of FRS17. The new rule was also cited as a key reason behind the closure of several final salary pension schemes, added the NAPF.
Commenting on the results, NAPF chairman Peter Thompson, said: “We have been warning for some time that FRS17 would drive many employers from providing defined benefit pensions, and that is precisely what is now happening.
“The NAPF has always supported better disclosure of relevant information, and would welcome an accounting standard which reflects the long term nature of any pension promise. But bringing snap-shot accounting into the accounts of the sponsoring company will not only invite confusion among investors, but will inevitably lead firms to question whether it is worth their while continuing to offer a good quality final salary pension scheme.
“Coming on top of other pressures on company pension scheme providers, FRS17 will all too often prove to be the final straw which drives firms away from offering such schemes,” he added.
Thompson also argued that such closures would jeopardise the Government’s aim of reversing the present 60% state/40% private split of pension provision, threatening thousands of future pensions.
FRS17 specifies how companies must report the cost of providing pensions and other post-retirement benefits for their employees. The system, touted as a more prescriptive measure than the existing SSAP 24 standard, will come into force in June 2003. It has already prompted some schemes to increase their fixed income exposure, and has already tipped the balance for some small and medium-sized pension plans who have wound their DB schemes down.
Trade unions also sounded cautionary notes this week, warning that similar moves would also have a demoralising effect on employees.
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