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Aon in final-salary warning

More companies are set to ditch final-salary schemes because of changes to the pension accounting regulations, warns leading actuary and pension consultant Aon Consulting.

It claims the new reporting standard FRS17 will make pension costs in company accounts more volatile, so final-salary schemes will be less attractive.

The new standard specifies how companies must report the cost of providing pensions and other post-retirement benefits such as healthcare and will be fully operational for accounting periods ending on or after June 23, 2003.

Aon says increased volatility in company balance sheets could be reduced by changing investment strategy, such as shifting towards bond investments. But it points out that this could increase pension expenses as it will be more difficult to assume such a high long-term return on the assets.

Head of actuarial and benefits practice Donald Duval says: “There are a number of ways the impact on a company&#39s accounts can be mitigated. However, the choice is dependent on the scheme&#39s circumstances and each method will have advantages and disadvantages.”

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