Experts warn that FRS17 is not strict enough

The Pensions Board has warned that employers will have to pay billions more
than is currently forecast in order to pay off their pension costs.

The Board argued in a research paper that the method used to calculate
buy-out costs underestimates the actual costs required to pay deficits in full.

The implication of this is that the actual cost of paying off deficits will
exceed the amount calculated under the FRS17 accounting standard, which puts the
estimated FTSE100 pension costs at £50bn.

According to the Financial Times, estimates used by pension
actuaries are not conservative enough when it comes to estimating the longevity
of scheme members and a pension scheme’s solvency.

James Fraser, the head of the LEK Consulting’s financial services practice,
told the FT that the deficit of the FTSE100 could be as high as £150bn,
approximately triple the shortfall calculated using FRS17.

He said: ‘Many pension funds still do not take full account of potential
future improvements of longevity in their valuation, in spite of the fact that
life expectancy has been improving since the Middle Ages.’

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Fiona Westwood of Smith and Williamson.