ASB vote will cause shake-up for pensions

A critical vote is to be taken today by the
Standards Board
, which could put pressure on companies to disclose their
pension deficits on a ‘buy-out’ basis – a number far
larger than the one that appears on their balance sheets.

The ASB has been working on proposals to improve the quality of the level of
disclosure of risks and liabilities.

The ASB’s has now amended
FRS 17, which
deals with retirement benefits, so that any company that operates or sponsors a
defined benefit scheme should have to issue a reporting statement, with a
‘buy-out’ value for deficits.

The amendment incorporates disclosures about the relationship between
companies and trustees, the principal assumptions used to measure scheme
liabilities, how the liabilities arising from defined benefit schemes are
measured, the nature and extent of the risks arising from the assets held by the
defined benefit scheme, and even the future funding requirements for the scheme.

The new disclosure would not be mandatory but companies that fail to adopt
the practice could find themselves under pressure from shareholders.

Preparers of statements as well as audit professionals have objected to the
idea of scheme liabilities being revealed by virtue of calculating their
‘buy-out’ values. This is because such different figures are bandied about for
buying out a pension scheme’s liabilities, ranging from the amount an insurance
company may want in order to settle, to the varied figure calculated for
accounting purposes.

Further reading:

ASB proposes buy-out tags on pension schemes

Accounting: Pension plan

Changes to be made to FRS17

Related reading