UK – FRS17 and the minimum funding requirement (MFR) do not show the ‘real’ risks inherent in defined benefit (DB) pension scheme funding, says employee benefits advisors, Gissings.
Divisional director at Gissings, Tim Webb, says that the real problem for long-term pensions accounting lies in an obsession in the industry with short-term funding measures based on index models. “The idea that FRS17 or MFR shows the real risk is nonsense. They are inherently artificial,” he comments.
Historically, according to Gissings, trustees and actuaries have understood the fluctuations in the financial position of DB schemes by looking at equity investments from a long-term perspective.
FRS17 and MFR encourage short-term thinking, says Gissings, and with FRS17 coming on the back of MFR so soon, many employers will move to a defined contribution arrangement as this is a safe haven from the balance sheet volatility the new accounting standard will cause. “Many have not yet taken action on closing their DB plans because they don’t want to be the first in their sector to do so. They are simply waiting in the wings,” says Webb.