View more on these topics

NAPF call for reform of occupational pension accounting

tomlinson.jpg

Accounting standards used by companies to calculate pension assets are too focused on the short-term, undermine occupational pension provision and should be reformed, according to a report from the National Association of Pension Funds.

Released today, the report, Accounting for Pensions, says the International Accounting Standards Board rules use current market prices to value surpluses and deficits allowing short-term market volatility to skew the measurement. It recommends they should instead be valued on how the plan sponsor expects them to perform over the long-term, discounted for inflation.

NAPF chairman Lindsay Tomlinson says recent turmoil in the markets highlights how volatility can present large deficits which may be inaccurate in the long run.

He says: “This can have serious repercussions for pension provision, retirement saving and the economy. Employers who are faced with these large deficits may decide to close the defined benefit pension schemes to existing and future members.”

Supporters of the IFRS rules say they bring clarity around a risk that was previously badly understood. In July, the Government applied similar rules to public sector pensions, publishing figures which put the current liability at £1.13trn.

Tomlinson says the size of the deficits that appear after sharp falls in the market can lead schemes to adopt extremely cautious investment policies.

He says: “By choosing to invest in low return assets such as bonds rather than equities, pension schemes are not only likely to be following sub-optimal investment strategy, but will also support the economy less at a time when there is a risk of a double dip recession.”

The report was carried out in conjunction with Leeds University Business School.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com