Analysis reveals major shortfalls under FRS17

Nearly two-thirds of pension funds will show a shortfall under the new accounting standard FRS17, according to figures from consulting firm Mercer.

Mercer Human Resource Consulting analysed 59 sets of company accounts newly published under FRS17. In 37 per cent of cases, the funds fell more than 10 per cent short of scheme liabilities.

More than one in three companies – 36 per cent – had pension funds that accounted for more than half the size of the company itself. In one in six companies – 17 per cent – the pension fund exceeded the size of the firm.

Nearly 60 per cent of firms are expecting to see a drop in company assets on their balance sheets when they adopt FRS17 in the company reports.

Pension funds now invest more defensively, with one in five now holding less than 60 per cent in equities compared with an industry average of 75 per cent in the past few years.

Mercer says there has been a shift towards higher bond allocations over the past two or three years as employers look to reduce the impact of short-term equity volatility on their FRS17 disclosures.

The number of firms offering only a defined-contribution pension scheme to new employees now stands at 30 per cent.

A further 15 per cent offer new employees both defined-benefit and defined-contribution schemes while more than half of firms – 55 per cent – continue to offer only defined-benefit provision.

Of the companies surveyed, 33 were in the FTSE 100 and 26 came from the top half of the FTSE 250.

Partner Tim Keogh says: “The figures show very clearly that, for a significant minority of companies, pension scheme management is a major business activity in its own right.”