UK - An international think-tank has criticised FRS17 and warns that full implementation will aggravate the funding gap.
The Organisation for Economic Cooperation and Development claims the accounting standard has a disproportionately adverse impact in the UK because schemes have high equity asset allocations.
It said that while the reporting standard might introduce greater transparency to firms’ balance sheets, it would increase volatility, by giving more prominence to long-term pension liabilities.
The OECD added: “While a recovery in capital markets would lessen shortfalls, there is some risk the funding situation will grow worse, even if there is no further decline in markets.”
It said this was because pension fund assets were marked to market value (equities) while liabilities for buyout were based on double-A corporate bond yields.
Low interest rates on high quality assets would aggravate the funding gap.
This week's edition of Professional Pensions is out now.
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