EUROPE - European pension funds have collectively given a strong thumbs-down to key proposals set out by the International Accounting Standards Board (IASB) on pensions accounting reforms, and even argue the initial review creates more problems than it solves.
Details of the European Federation of Retirement Provision's (EFRP) response to the consultation on IAS19 Employee Benefits state there is "strong opposition to the IASB's proposals on contribution-based promises", while "proposals will create more problems than they solve" and "the proposal to eliminate the corridor option is premature".
These were the EFRP's headline criticisms - on behalf of members in 21 EU and non-EYU countries - of the IAS19 review which is being conducted by the IASB find short-term improvements to information on post-employment benefits.
More specifically, the EFRP suggests any proposal to eliminate the corridor option is earlier and should instead wait until the IASB has completed its full review of pensions accounting, so elimination of the corridor approach follows, rather than precedes, a new standard on presentation.
The IASB's proposed definition of contribution-based promises was heavily criticised and described by the EFRP as "unnecessarily complex and fundamentally flawed" but could instead be accounted for through "slight amendments to IAS19".
Officials said as well as being "difficult to understand", the definition of schemes with defined or guaranteed returns "will result in some types of schemes that we would see as being defined benefit being accounted for as contribution-based schemes, with the result that it is difficult to work out how some schemes will be affected" and will "involve a switch from IAS19 DB status to CB".
The EFRP argued in attempting to clarify the boundary between DB and DC schemes, it has in fact proposed changes which could have a major impact on the reported liabilities of most pension funds in certain countries and this would in turn make reporting convergence more difficult.
"The proposals involved fundamental changes in accounting practice and therefore, as a matter of principle, are not appropriate for what is intended as an interim amending standard," the response states.
"It is difficult to see why final salary and career average schemes should be accounted for on a different basis, however hard one might try to distinguish them as representing a different balance of asset and salary risk".
One recommendation the EFRP has made is the IASB improve disclosures across all accounting by adopting the stance taken in the UK and US accounting standards to allow a more flexible approach to the time frame for reporting expected returns for each material asset class under IAS19 and FRS17.
At present, each class has to be reported with a five-year historical record comparing expected and actual returns, but the EFRP believes five years might not be the best timeframe under which to assess long-term trends.
The response submitted by the EFRP is the collective response of its members and follows similar criticisms raised by individual organisations and firms. (See earlier IPE articles: NAPF queries IASB's 'radical tidying' of pensions accounting, New face to take on IASB pensions review and German pensions face near full value shift under IASB reform)
If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com
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