Buy-out values to be reported for pensions

Companies will be advised to declare their pension liabilities at a so-called
‘buy-out’ value.

The Accounting Standards Board voted last week to adopt the principle, and
companies will have to disclose the figure once they have already informed
trustees and/or members of the scheme.

The board voted in favour of a reporting statement last week to improve
transparency in pensions reporting. The move comes after many have suggested
that financial statements of defined schemes did not contain sufficient

Because companies disclose so little about the longevity assumptions they
use, investors find it difficult to gain a true understanding of the risks
inherent in any particular scheme, and whether cash contributions, or other
actions, may be needed in future to fill a funding gap.

The ASB advised six principles for reporting: the relationship between the
company and trustees; the principal assumptions used to measure scheme
liabilities; the sensitivity of those principal assumptions; how the liabilities
are measured; the future funding obligations; and the nature and extent of the
risks arising from financial instruments.

The statement has been structured as a best practice guide, intended to have
persuasive rather than mandatory force that may be applied to any company that
operates a defined benefit scheme.

Ian Mackintosh, chairman of the ASB, said: ‘The Reporting Statement allows
preparers the flexibility to provide disclosures appropriate to the risks their
company is exposed to.’

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