The Accounting Standards Board is due to approve a draft pensions standard today, despite warnings that the new rules will restrict future benefits paid by pension funds.
Following a series of field tests of the proposed provisions, pensions managers from companies including Sainsbury’s and Diageo warned that valuing pensions assets and liabilities at their market values would introduce unwanted volatility to company results.
Diageo group pensions manager Steve Mingle said: ‘The whole concept is that pensions represent assets and liabilities. But they are so long term, there is not going to be an immediate realisation, which is what the market valuations imply. Accounting concerns shouldn’t have an impact on the way we invest pension fund money.’
Companies would tend to invest more for stability as a consequence and would be deterred from introducing benefit improvements that would have to be shown as a one-time hit to the p&l, he added.
Mingle’s views were endorsed by actuaries Lane Clark & Peacock, who warned that the new rules would steer finance directors away from final-salary schemes in favour of more predictable, less generous money-purchase schemes.
Glaxo Wellcome and Sainsbury’s have field tested the standard by applying it retrospectively to their accounts. PricewaterhouseCoopers also conducted a study with around ten of its clients.
Glaxo Wellcome finance director and ASB board member John Coombe said the move to market values would make life easier for international investors by bringing the UK into line with international practice. ‘There is a lot of noise, but economically, it shouldn’t affect pensions, because the funds will still be managed to deliver the benefits,’ he said.
ASB chairman Sir David Tweedie said: ‘The actuaries are saying if companies invest in bonds to avoid volatility, they will lose money. But if the stock market goes down pension funds also lose money, We’re taking the sums out of the p&l account and making them crystal clear.’
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