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DWP to discuss reporting concerns with ASB

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  • DWP to discuss reporting concerns with ASB

UK - The UK government has confirmed it intends to make "representations" to the Accounting Standards Board (ASB) over its proposals to change the way pension fund assets and liabilities are reported.

Proposals outlined by the ASB in a discussion paper in January suggested changes in pension assets and liabilities should be reported as they happen rather than spread into the future, and that financial statements should reflect the actual return on assets instead of estimates.

However, the ASB's proposal to switch the discount rate for liabilities from a corporate bond rate to a lower "risk-free" rate from government gilts has raised serious concerns among parts of the pensions industry on the basis a reduced discount rate would increase liabilities.

Consulting firms and organisations such as the National Association of Pension Funds (NAPF) have warned the reporting changes could mean the end for defined benefit schemes, with consultants suggesting the change in discount rate could increase total pension liabilities by between £80-120m. (See earlier IPE article: ASB changes will "fast-forward" demise of defined benefits)

As a result, a spokesman for the DWP said: "We are aware that concerns have been expressed by stakeholders about proposals on the financial reporting of pensions in the ASB discussion paper. DWP officials have met with the ASB to discuss these issues - and to encourage a balanced response which pays due attention to these concerns."

In response, a spokeswoman for the ASB said: "The ASB looks forward to receiving the minister's comments in response to its public consultation. The minister's comments will be considered, alongside other responses, as part of the Board's redeliberations of the preliminary views set out in the discussion paper."

The ASB proposals - which aims to influence the International Accounting Standards Board (IASB) review of the existing reporting standard IAS19 - are still open to consultation until July 14 2008.

That said, the IASB started distancing itself from the suggestions as early as March, when chairman David Tweedie suggested the ASB had "gone further than we probably will" on the issue of the discount rate. (See earlier IPE.com article: IASB pulls back from ASB plans)

In addition, the DWP's involvement in the ASB discussions comes as doubts are being raised about whether the IASB may scale down the scope of its review of pension accounting, originally envisaged as a "root and branch" review, over issues including future interaction with the US accounting system. (See earlier IPE.com articles: IASB hints at watering down of pensions review and IASB may scale back pensions accounting project)

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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