NETHERLANDS - The combined pension deficit of the Netherlands' 50 largest companies grew by €1bn ($1.3bn) in 2010, research by LCP has found.
The "Pensions Accounting Briefing" report published by LCP Netherlands, which analyses the pension disclosures of companies listed on the Amsterdam stock exchange, shows the combined deficit of AEX and AMX companies increased from €24bn in 2009 to €25bn in 2010. Total employee benefit liabilities grew from €179bn to €200bn over the same period.
LCP said despite positive investment returns of €19bn, a combination of increased IAS19 values on projected benefits (€13bn) and interest charges of €10bn had caused the rise in deficits.
The report also highlights the potential impact of new IAS19 accounting rules, which will apply from 2013 and could have a material impact on companies' reported profits. LCP Netherlands estimates that had the new rules applied in 2011, the impact of changing the expected return on assets element alone could have led to a €1.5bn reduction in 2011 profits across the AEX and AMX companies.
However, the actuarial consultant added the reduction would have been offset due to the new IAS19 rules removing the smoothing mechanism that is currently allowed. In addition, removing the smoothing mechanism - commonly called the "corridor method" - would have increased the balance sheet liabilities of the AEX and AMX companies by €17bn based on 2010 figures.
LCP believes further de-risking through the use of collective defined contribution schemes and the elimination of IAS19 liabilities from the balance sheet are expected if the Dutch Pensions Deal is introduced. However, it added that irrespective of the Deal being passed, all pension plans will require changes to be made during 2012 at the latest.
LCP Netherlands partner Jeroen Koopmans said: "Pension schemes in the Netherlands are facing significant challenges with the advent of new accounting standards and the possible introduction of the Dutch Pensions Deal, which is likely to have far-reaching consequences for employees, employers, pension funds and insurers. Additionally, it's unlikely that these new standards will signal the end of changes in the way companies account for their pensions obligations, which could increase liabilities further.
"We estimate that if companies were required to value liabilities on a minimum-risk basis, for example, the increase in value of pension liabilities disclosed on the balance sheets of AEX and AMX companies could run to as much as €50bn."
The Pensions and Lifetime Savings Association (PLSA) is in the process of convening an industry-wide group to take forward the work of the Institutional Disclosure Working Group (IDWG).
The Transfers and Re-registration Industry Group (TRIG) has given its support to an initiative which aims to complete occupational pension transfers within three weeks.
Scottish Widows has completed a bulk annuity deal for the Hitachi UK Limited Pension Scheme.