NAPF: Proposals for pensions accounting are premature

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Wednesday, 01, Oct 2008 12:00

In its response1 to the International Accounting Standards Board’s proposals2 to change the way employee pensions are accounted for, the National Association of Pension Funds (NAPF) said that the radical proposals from the IASB neither provide meaningful information to investors and users of accounts, nor are likely to encourage good pension provision

The NAPF has opposed the IASB’s proposals that all gains and losses arising from Defined Benefit (DB) plans should be immediately recognised, thus removing all options for deferred recognition. The NAPF believes that the option for deferral of actuarial gains and losses should not be removed until after an acceptable standard on financial statement presentation has been developed.

The NAPF believes that the resulting volatility arising from immediate recognition will overwhelm the operating results, causing finance directors and company boards to withdraw from offering their employees good quality Defined Benefit pensions that are, in fact, affordable.

The NAPF has said that the creation of a new category of ‘contribution-based’ pension promises which would cover all pension schemes other than final salary schemes should be withdrawn. The proposal represents a fundamental change in pensions accounting and is outside the scope of what is intended as an amending standard.

NAPF Director of Policy, Nigel Peaple, said

“The bulk of the IASB’s proposals are premature and should be set aside until after the planned more thorough review on pensions accounting has been completed.

“Forcing companies to immediately recognise gains and losses in the profit and loss account would result in volatility that could result in companies withdrawing Defined Benefit schemes that are, in reality, affordable.

“The proposals for a new category of pension promise – contributions based – are a fundamental change in pensions accounting and should not be included within the scope of an interim standard. In the UK, the changes would reduce the attraction of employers to schemes, such as career average schemes, which reduce pension risk without passing it entirely on to their employees.”

ENDS

1. The NAPF response to the consultation can be found at http://www.napf.co.uk/policy/recentreports.cfm.

2. The IASB’s consultation document can be found at http://www.iasb.org/NR/rdonlyres/BC7FA133-F019-42A4-9CAE-682CA5EE576A/0/DP_AmendmentstoIAS19_WEBSITE.pdf.

About the National Association of Pension Funds

The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,200 pension schemes with some 15 million members and assets of around £800 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.

Journalists requiring further information, please contact

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

Ruth Wharram 020 7808 1345 ruth.wharram@napf.co.uk 07825 171446