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Changes to IAS19 could result in 'unpleasant' pension fund announcements

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  • Changes to IAS19 could result in 'unpleasant' pension fund announcements

GERMANY - Changes to IAS19 accounting regulations may result in "unpleasant" statements from German companies on the condition of companies' occupational pension schemes, Mercer has warned.

Speaking about changes that will see the end of expected return calculations with a net interest cost for the discount rate taking its place, Thomas Hagemann, chief actuary of the consultancy's German office, said there could be significant discrepancies between the two.

Hagemann added that regulations would mean company pension funds would need to report on the risk inherent to its pension promises and how these could affect company cash flow.

"This will mean not only significant additional effort for companies - they will potentially also need to announce unpleasant details about their pension funds," Hagemann predicted.

"Many companies have not addressed the risk in their pension schemes over the past few years. IAS19 can therefore act as an incentive to identify, examine and potentially address said risks."

Hagemann said that, overall, the changes brought about by IAS19 should be welcomed, saying that changes to profit and loss accounting would lead to annual reports easily compared with others.

Echoing Jim Verlautz of Mercer's retirement, risk and finance group, Hagemann said the application of the discount rate would also lead to companies reassessing a scheme's investment strategy.

Rival consultancy Towers Watson had earlier predicted the new guidelines would encourage low-risk investment.

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