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Govt to review pension accounting over deficit concerns

George Osborne 480

The Government has announced a review of pension fund accounting methods following concerns about the impact rising deficits are having on businesses.

The Confederation of British Industry has been calling for changes to the way defined-benefit liabilities are accounted for on company balance sheets.

Currently these liabilities are valued on a “marked-to-market” basis, meaning the figure can be very volatile.

Businesses have argued the figure should be “smoothed” over a number of years to prevent spikes in company deficits from forcing companies to plough more cash into their scheme.

The Autumn Statement, published last week, says: “The Government is determined to ensure that defined-benefit pensions regulation does not act as a brake on investment and growth.

“The DWP will consult on providing The Pensions Regulator with a new statutory objective to consider the long-term affordability of deficit recovery plans to sponsoring employers.

“The Government also recognises that volatility in measures of pension scheme deficits can make it hard for companies to manage their investment plans and attract external funding.

“DWP will also consult on whether to allow companies undergoing valuation in 2013 or later to smooth asset and liability values.”

Hargreaves Lansdown head of advice Danny Cox says: “Smoothing deficit valuations is a decent idea to help businesses manage their cash flows. However, care is needed to avoid companies using this as an artificial mechanism to divert resources away from their pension funding responsibilities.”

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