The findings in this year’s research by Lane Clark & Peacock into pensions’ disclosure in FTSE 100 index published yesterday will aid actuaries’ opposition to the new accounting rule on pension, FRS17.
Alex Waite, LC&P partner, said: ‘FRS17 will provide more information, but not necessarily useful information. Investors don’t stand a chance of understanding this new standard. And it won’t help pension scheme members.’
Disclosure has improved year-on-year, but eight FTSE 100 companies continue to flout accounting requirements on pensions disclosure. Since last year’s survey 18 companies have improved their disclosure. Twenty-five FTSE companies gained top scores for their disclosure, an improvement on last year’s survey which awarded only 13 companies the top score. However 16 companies were new to the FTSE index in 2000.
Abbey National, Royal & Sun Alliance and Scottish Power moved up from 11 last year to the LC&P maximum score of 20 this year. BAT, Celltech, ICI, Land Securities, Marconi, Powergen, Spirent and Vodafone all scored lower than 16, the level regarded as minimum by LC&P.
FRS17 will force companies to measure assets and liabilities using market values rather than at historical cost and book them straight into their accounts. The current standard allows companies to spread any earnings or losses over a period of time, usually 15 years. This is known as a smoothing method, which accountants say portrays an unclear picture.
LC&P partners argue that the introduction of the new rule will mean that more and more companies will switch to defined benefit schemes moving the risk on to the employee. Other concerns raised centred on the volatility that will hit company results because of market fluctuations.
Alex Waite, LC&P partner, said: ‘The change in the raw numbers can be enormous. BT’s reported pension cost in 2000 was £167m. Under FRS17 the corresponding cost might well amount to a £620m charge against profits.
‘Last year GlaxoSmithKline had a balance sheet liability of £900m but under FRS 17 that might become a surplus of £300m – a balance sheet movement of well over £1bn.’
Other concerns included companies’ ability to use pension surpluses to offer benefit improvements, such as early retirement or extra contributions, will be severely reduced.
Martin Slack, LC&P’s senior partner said that a client which applied the global accounting rule, similar to FRS17, saw a hit to profits when offering benefit improvements even though the company’s pension was in surplus.
Newer entrants to the FTSE 100 only offer defined contribution schemes and many more established companies have closed their final salary schemes due to the to market valuations and longevity, among other factors.
FTSE 100 companies employ around 3.5 million people in the UK and have pension assets of around £250bn. All information showed in LC&P survey is taken from company accounts.
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