FRS17 forces firms to use bond and equity markets

FRS17 forces firms to use bond and equity markets

The huge pension deficits revealed by using controversial accounting standard FRS17 are set to encourage a new wave of corporate bond and rights issues.

Link: FRS17 blamed for economic stagnation

Analysts have predicted that UK companies will look increasingly to the bond and equity markets to raise extra cash, as a knock-on effect of diverting more cash to pay for pensions.

The forecast came as a new survey from consulting actuary Lane Clark & Peacock claimed the FTSE-100 would need to reach 6,000 by this time next year to clear an estimated £55bn pensions deficit brought about by the controversial accounting standard FRS17. The FTSE is currently around 4,100.

Crispin Southgate, European credit strategist at Merrill Lynch, said the sheer scale of deficits means that diverting extra cashflow to pension funds could have a significant effect.

‘We could see more bond issuance or rights issues as an indirect effect. If you’re diverting more cash flow to your pension scheme, you have less cash to finance investment and you’re more likely to use the capital markets,’ said Southgate.

Rolls Royce has become the latest UK company to report a major improvement in cashflow, only for the money to be soaked up by its FRS17 pensions deficit.

The company said it would use some of the £247m increased cash flow to contribute up to £50m a year more to the group pension fund.

The latest Lane Clark & Peacock survey named BAE Systems, British Airways, BT Group, ICI, Invensys, Rolls-Royce and Royal SunAlliance as firms particularly exposed to falls in equities because of FRS17 troubles.

Email [email protected].

Share

Subscribe to get your daily business insights

Resources & Whitepapers

Why Professional Services Firms Should Ditch Folders and Embrace Metadata
Professional Services

Why Professional Services Firms Should Ditch Folders and Embrace Metadata

3y

Why Professional Services Firms Should Ditch Folde...

In the past decade, the professional services industry has transformed significantly. Digital disruptions, increased competition, and changing market ...

View resource
2 Vital keys to Remaining Competitive for Professional Services Firms

2 Vital keys to Remaining Competitive for Professional Services Firms

3y

2 Vital keys to Remaining Competitive for Professi...

In recent months, professional services firms are facing more pressure than ever to deliver value to clients. Often, clients look at the firms own inf...

View resource
Turn Accounts Payable into a value-engine
Accounting Firms

Turn Accounts Payable into a value-engine

3y

Turn Accounts Payable into a value-engine

In a world of instant results and automated workloads, the potential for AP to drive insights and transform results is enormous. But, if you’re still ...

View resource
Digital Links: A guide to MTD in 2021
Making Tax Digital

Digital Links: A guide to MTD in 2021

3y

Digital Links: A guide to MTD in 2021

The first phase of Making Tax Digital (MTD) saw the requirement for the digital submission of the VAT Return using compliant software. That’s now behi...

View resource