Actuaries cautious of new pensions rule
The imminent introduction of a new accounting standard for valuing company pensions will bring increased volatility and hit company profits, say actuaries.
Actuaries claim that although the new standard, FRED 20, which uses market value, will improve company disclosure, it will also increase complexity and market volatility, and produce reams of additional notes.
Allan Cook, technical advisor at the Accounting Standards Board refutes the prediction of volatility.
‘We think we are giving clearer information and they [users] will be able to use information and make better judgements and see the level of risks,’ explained Cook.
The warning comes as actuaries, Lane Clark & Peacock, this week released the results of their seventh survey of FTSE 100 companies called Accounting for Pensions.
This year’s survey shows less than half of FTSE companies provide sufficient valuation of pension schemes resulting in confusion for investors and users.
However, the number of pension schemes using market value as a basis for valuation has risen dramatically from 1% to 45% in the last three years, according to research by PricewaterhouseCoopers.
Even though the actuarial firm acknowledges that companies are failing to disclose essential information, it does not welcome the advent of FRED 20.
Companies are currently required to disclose the value of their pension schemes based on actuarial assumptions. FRED 20 moves away from actuarial values for assets in a pension scheme, a measure which is consistent with US and international standards of measurement.
Richard Abramson, Lane Clark & Peacock’s partner responsible for compiling the survey, said: ‘The new standard will lead to additional volatility in balance sheet numbers and pension costs so investors and other users of company accounts will find the new situation still more complex and confusing.’
FRED 20 is in its exposure draft stage. The ASB hopes to issue it by the end of the year allowing a long transistional period.