BT could have its pension deficit balloon to £4.6bn from £400m if it were required to report its retirement liabilities and assets under new rules proposed last week by the Accounting Standards Board.
In a report for RBC Capital Markets, John Ralfe, an independent pensions consultant, notes the proposed rules draw attention to an aspect of BT’s risk management which is now under scrutiny because of the scheme’s heavy reliance on investment in equities to make up the shortfall, the Financial Times reports.
‘What gets measured gets managed, so increased transparency should change management behaviour and improve the management focus on pension costs and risk,’ Ralfe said.
At the heart of the ASB’s proposed rules is the recommendation pension liabilities be discounted at a risk-free rate of return, rather than the yield on AA-rated corporate bonds. It also suggests that, instead of using expected returns on assets as a contributor to profits, companies should use actual rates of return.
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