UK - FRS17 liabilities are set to soar for firms with financial year ends at December 31, Jagger & Associates warns.
The actuarial firm projects that stock market falls and revised longevity figures have increased liabilities by 50%.
Director Simon Jagger calculates that the expected future inflation of corporate bond yields means schemes with an average future term to retirement of 15 years will see the value placed on their FRS17 liabilities rise by 12% over 2002.
Jagger adds that with UK equity posting a -22% return, typical scheme liabilities outstripped equity assets by 34%.
He also points out that annuity rates have worsened by 16% in the last 12 months as insurers react to increased longevity figures. This, he says, means scheme liabilities have risen by some 50% relative to assets.Investment bank Schroder Salomon Smith Barney predicts that deficits for firms with December year ends will total £59bn.
The investment bank’s Europe and UK Pensions Analysis report adds that users of accounts are still “in denial” over the implications of FRS17 deficits.
Consultants now fear that these liabilities – which will begin appearing in company accounts from February – will only add to the general negative atmosphere currently engulfing DB schemes.
But NAPF investment director David Gould is confident firms understand the context of these liabilities given FRS17’s high profile last year.
*Last July consultants urged trustees to take “urgent steps” in explaining FRS17 deficits to scheme members after severe falls in the stock market.
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