UK - The National Association of Pension Funds (NAPF) has urged the Accounting Standards Board (ASB) to revise proposals on the financial reporting of pension plans, warning they are likely to further weaken and erode UK defined benefit (DB) schemes if left unchanged.
It was also concerned employers providing pensions via multi-employer schemes would be required to account for pensions in the same way as those using single employer schemes, and pension schemes would have to show liabilities as well as assets in their full accounts.
Analysis by actuarial consultancy Punter Southall, on behalf of the NAPF, showed the ASB's proposals for measuring liabilities would double reported liabilities for young pension schemes and increase them by 60% and 25% for medium and mature schemes, respectively.
Joanne Segars, NAPF chief executive, said: "Like other regulators and standard setters, the ASB cannot operate in a vacuum, indifferent to the consequences of their actions.
"Instead it must offer a 'real world' solution to the issue of accounting for pensions that, on the one hand, takes account of the need for transparency and, on the other, the need to maintain good quality defined benefit pensions that provide valuable retirement income to millions of working people.
"The ASB should revise its proposals, especially those relating to the use of a risk-free discount rate which will increase reported defined benefit scheme liabilities."
In its response to ASB proposals, Punter Southall recommended an an alternative to the risk-free basis proposed in the paper, suggesting disclosure on the basis used for Scheme Specific Funding.
Peter Black, principal at Punter Southall, said: "The most significant recommendation of the discussion paper for UK pension schemes if adopted is the proposal to discount liabilities using a risk-free rate.
"We believe that the principle of accounting for pensions on a risk-free basis is counter to the best estimate approach adopted for valuing going concerns and fear that use of a risk-free basis will produce very high values with serious consequences for UK companies.
"We accept that there is no intellectual justification for using AA bond yields as the measure of pension fund liabilities and note that the credit crunch has shown this measure to be very volatile. Punter Southall's alternative proposal is to adopt the same basis as set out in the scheme's Statement of Funding Principles. This is a basis agreed by the scheme sponsor and trustee as a prudent estimate of liabilities, taking into account the particular circumstances of that scheme."
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