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Accounting rules pose threat to DB schemes

Scottish Equitable is warning that new company accounting standards could force the closure of many defined-benefit schemes and threaten the retirement options of thousands of employees.

ScotEq believes that the Inland Revenue&#39s FRS17, which requires firms to show the state of their pension scheme on the balance sheet, could be the final straw for employers with defined-benefit schemes.

Director of pensions development Stewart Ritchie says the additional burden could motivate thousands of employers to close their defined-benefit pension schemes for fear that inclusion on the balance sheet may make them appear insolvent.

ScotEq says defined-benefit schemes have been hit by falling stockmarket returns, longer life expectancy and changes to pension rules and taxation. Ritchie believes the problem is exacerbated by dwindling pension fund surpluses and the possibility of ongoing contribution holidays.

If schemes are shut down, Ritchie says employees will turn to alternative arrangements such as defined-contribution schemes which could leave pensions severely depleted from stockmarket falls.

He also fears they could be affected if Chancellor Gordon Brown makes another raid on pension funds in this year&#39s Budget.

Ritchie says: “If everything else in the defined-benefit garden were rosy, FRS17 might be merely an irritant but it is only one of many straws on the back of the employer with a defined-benefit scheme.

“Virtually all employers offering these arrangements must be reviewing the decision to offer such a scheme.”


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