Proposals for pensions accounting are premature

In its response to the International Accounting Standards Board's proposals to change the way employee pensions are accounted for, the National Association of Pension Funds (NAPF) said that the radical proposals from the IASB neither provide meaningful information to investors and users of accounts, nor are likely to encourage good pension provision.

The NAPF has opposed the IASB's proposals that all gains and losses arising from Defined Benefit (DB) plans should be immediately recognised, thus removing all options for deferred recognition. The NAPF believes that the option for deferral of actuarial gains and losses should not be removed until after an acceptable standard on financial statement presentation has been developed.

The NAPF believes that the resulting volatility arising from immediate recognition will overwhelm the operating results, causing finance directors and company boards to withdraw from offering their employees good quality Defined Benefit pensions that are, in fact, affordable.

The NAPF has said that the creation of a new category of ‘contribution-based' pension promises which would cover all pension schemes other than final salary schemes should be withdrawn. The proposal represents a fundamental change in pensions accounting and is outside the scope of what is intended as an amending standard.

NAPF Director of Policy, Nigel Peaple, said "The bulk of the IASB's proposals are premature and should be set aside until after the planned more thorough review on pensions accounting has been completed.

"Forcing companies to immediately recognise gains and losses in the profit and loss account would result in volatility that could result in companies withdrawing Defined Benefit schemes that are, in reality, affordable.

"The proposals for a new category of pension promise - contributions based - are a fundamental change in pensions accounting and should not be included within the scope of an interim standard. In the UK, the changes would reduce the attraction of employers to schemes, such as career average schemes, which reduce pension risk without passing it entirely on to their employees."