Inconsistent reporting ups pension deficit

Inconsistent reporting ups pension deficit

Companies are inconsistent in the way they report their pension obligations, meaning the FTSE 100 pensions deficit could be £40bn higher than stated, experts have warned

Concerns have been raised over the inconsistency in the way FTSE 100
companies make assumptions about longevity, after a recent report comparing BT
and Royal Mail showed that BT’s data assumed scheme members will, on average,
die two years earlier than at Royal Mail.

According to the report’s author John Ralfe, a two-year increase in BT’s
assumptions would increase BT’s liabilities by £3bn to £41.2bn and more than
double its deficit to £5.5bn.

Only 37 companies have disclosed their mortality risk estimates in their
annual reports, although new accounting rules say this should be best practice
for all companies. Consultants at the Mortality Investigation Bureau said that
the average assumption for a man retiring at 60 should be that he will live
until 87, while BT set the mark at 83.5 years.

In September the pensions regulator, David Norgrove, warned individual
schemes could be hit by tens of millions of pounds of unforeseen liabilities by
understating longevity risk. Bob Scott, a partner at actuaries Lane Clark &
Peacock, said that valuations are still far from an exact science, but
maintained that deficits were calculated on sound data.

‘It is a subjective calculation, but the figures in the company report are
calculated on projections which are carefully audited. The scope for companies
to make an assumption that is overly optimistic is not great.’

‘This has been based on the assumption that BT has understated the longevity
of employees, it may be that the Post Office have overstated theirs. It’s not
something that you can state with absolute authority or accuracy. We’re talking
about projections many years into the future when there could be major advances
in medical science and significant changes to living conditions.’

Scott added ‘I don’t think it’s feasible for a company to present figures and
get them audited on a basis that was materially out of line with what other
companies were doing.’

Separately, the UK’s Accounting Standards Board this week said that it was
amending its FRS 17 standard for pensions in order to align it with IFRS
equivalent IAS 19. The change will see quoted securities priced at fair value
using the current bid price rather than the mid-market value. The amendment to
FRS 17 will be published in December, and will be effective for accounting
periods ending on or after 6 April 2007, although early adoption is encouraged.


Nick Land joins Vodafone

Nick Land has been appointed a non-executive director of Vodafone. The former
chairman of Ernst & Young has joined the board of the telecoms giant, having
already taken on a role as a non-exec at Shell. Sir John Bond, Vodafone
chairman, said: ‘Nick’s financial expertise and experience of dealing with major
corporations in many parts of the world will be invaluable to us.’

Triad exec compensated

The former chief executive of the Triad Group, Mira Makar, has been
vindicated, almost a year after she was sacked for raising concerns about the IT
consultancy. She has won an undisclosed settlement for her distress. Mira Makar
was sacked for raising concerns, but her former company now admits they were
‘reasonable’. Makarwas suspended by her former partner, John Rigg, in February,
when he interrupted a meeting she was having with the firm’s brokers at which
she was detailing her concerns. She was later officially sacked in December,
reports said. Her lawyers were about to present her case before an employment
tribunal when Maker was offered a private settlement. In a statement to the
stock exchange, the company said: ‘The directors accept that Ms Makar had a
reasonable basis for concerns on a number of financial issues.’

Iberdrola fuels rumours

Iberdrola, Spain’s second-largest power company has confirmed that it is
considering a £12bn takeover bid for Scottish Power. Negotiations continued
between the two sides last weekend and a formal announcement is expected
imminently. The offer could reach 800p a share, according to some industry
experts and Scottish Power’s share price finished strongly at 741p at the end of
trading last week as the market reacted to the speculation. Iberdrola has set
its sights on Britain’s fifth largest utility, analysts say, because Spanish
markets are saturated and the only way to fend off hostile takeover bids from
abroad, such as E.ON’s play for Endesa, is to grow through acquisitions.
British companies are juicy targets for the Spanish because the UK market is
‘practically the only one in Europe that does not throw political hurdles in the
path of foreign purchases, said Robert Tornabell, professor of finance and
former dean of ESADE business school in Barcelona.

Iconic brand now secure

The future of Airfix Humbrol has been secured after it was purchased by model
and train set manufacturer Hornby for £2.6m.Hornby will look to revitalise the
Airfix brand by adding a range of kits for younger children alongside the more
traditional models it makes. It will restructure the business by moving
distribution, sales and marketing operations to its own site in Kent. ‘The
strategic fit with Hornby is excellent,’ said Hornby chief executive Frank
Martin. ‘Hornby has similar distribution channels to Humbrol/Airfix, and we
therefore plan to integrate the business into our existing structure, which
gives the business a more streamlined base from which to grow.’ Partners of
Grant Thornton have acted as administrators at Airfix since September, and made
31 out of 41 staff redundant at the Hull-based business. Keith Hinds, joint
administrator, said: ‘This transaction provides the best opportunity to preserve
and develop what is an iconic brand.’

Ryanair gets cold feet

Ryanair has held fire on snapping up shares in Aer Lingus despite a fall in
the Irish national airline’s stock below the E2.80 (£1.80) a share it is
offering. Irish media reported that as the share price fell as low as E2.70 at
the end of last week Ryanair’s failure to buy up more shares showed Europe’s
biggest budget carrier might be getting cold feet over its E1.48bn bid.Traders
and analysts refuted that view, saying that the lower the share price went the
more it reinforced Ryanair’s message to Aer Lingus staff shareholders that the
stock will fall if the takeover offer fails.

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