NAPF’s Initial Response to ASB Report

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Thursday, 31, Jan 2008 12:00

NEW ACCOUNTING MEASURES MUST MATCH REALITY

Commenting today on the publication of the Accounting Standards Board’s (ASB) discussion paper on The Financial Reporting of Pensions, National Association of Pension Funds (NAPF) Chief Executive, Joanne Segars, said:-

“We believe the ASB’s paper provides a good analysis of the issues related to the accounting of pensions. We agree with the majority of the review panel that future salary increases should be excluded from the calculation of pension scheme liabilities as they should only be accounted for once they have occurred.

“However, the suggestion that using the return on gilts instead of returns on corporate bonds as a basis for calculating liabilities, will give the impression that liabilities are higher than at present. And the requirement to include additional information about assets and liabilities in the company’s accounts may increase volatility in the measurement of deficits and surpluses.

“Taken together, there is a risk that these proposals may undermine employers’ willingness to continue to sponsor defined benefit schemes.

“The latest NAPF Annual Survey shows that DB schemes are entering a new period of stability. Whilst pension schemes must be transparent, nothing must be done to undermine this stability and employers’ commitment to pensions.

“The NAPF will consider the proposals in detail and respond with a full analysis”

Status of Open Defined Benefit Schemes

The 2007 NAPF Annual Survey of UK pension schemes reveals that workplace pension provision has found a new equilibrium after many years of change.

In 2007, as was also the case in 2006, around a third of private sector defined benefit schemes remain open to new members (31% in 2007, 33% in 2006 and 70% in 2002). With around two thirds (62%) of open private sector defined benefit schemes currently expecting to keep their schemes open in either their current or a modified form over the next five years. Negative accounting changes may make them reconsider.

Funding Levels of Defined Benefit Schemes

In terms of funding, using IAS19/FRS17 accounting standards, pension schemes were on average 93% funded compared with 86% in 2006.

The ASB Discussion Paper

The ASB discussion paper is available at http://www.apb.org.uk/asb/press/pub1513.html

ENDS

About The National Association of Pension Funds

The NAPF is the leading voice of workplace pension provision in the UK. Some 10 million working people are currently in NAPF Member schemes, while around 5 million pensioners are receiving valuable retirement income from such schemes. NAPF Member schemes hold assets of around £800bn, and account for approximately one fifth of investment in the UK stock market.

Journalists requiring more information should contact Mark Brooks:-

020 7808 1312 mark.brooks@napf.co.uk 07917 506683