Pension shift causes protests

Fears are growing that proposed changes to pension accounting rules will increase profit volatility and reduce UK industry’s competitiveness.

Professional bodies representing both accountants and actuaries have raised concerns about the proposals put forward in an Accounting Standards Board discussion paper. The changes are intended to bring the UK’s current standard on pension accounting, SSAP 24, more into line with international standards.

Their main effect would be to replace the long-term ‘smoothed’ actuarial approach for measuring pension assets and liabilities with a market-value based system.

Although it accepted this basic principle, the Institute of Actuaries said this week the ASB needed to rethink its plans. It feared they could lead to greater volatility and higher overall pension costs in the UK than elsewhere, damaging the international competitiveness of British industry.

Michael Pomery, chairman of the institute’s pensions board, said: ‘It would be highly undesirable for accounting policy to drive investment strategy or scheme design. Initial surveys show employers are very averse to volatile pension costs. We strongly recommend the ASB undertakes further research into companies’ attitudes.’

He added: ‘The accounting standard will apply to UK final salary schemes with assets totaling #600bn and a combined membership of over 10 million people. It is important that sufficient time is spent getting any changes right, rather than rushing into untried, untested approaches.’

ACCA also raised concerns about the changes. While it supported the move to market values, it expressed concern about the ASB’s proposal that actuarial gains and losses be recognised immediately.

Professor Brian Rutherford, chairman of ACCA’s financial reporting committee, said: ‘We are surprised the ASB is putting forward the immediate recognition option in the critical area of actuarial gains and losses. We think that spreading gains and losses over service lives, as we do at present, is a better approach given the uncertainty of the estimates that are involved with long-term pension costs.’

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