FRS17, the new pension fund accounting standard, is already affecting the pensions of thousands of UK workers, according to the National Association of Pension Funds (NAPF). In a survey of its members, the NAPF finds that more than three quarters of companies offering defined benefit (DB) schemes were less likely to do so in the future because of FRS17.
Moreover, the survey also reveals that some existing DB plans are already closed to new employees and, in some cases, to existing employees, with FRS 17 given as the main culprit.
The NAPF supports moves to amend accounting principles to encourage better balance sheet disclosure but says FRS17 in its current form is not the ideal solution. Chairman Peter Thompson says they have been warning for some time that FRS17 would drive many employers from providing DB pensions.
“The NAPF welcomes an accounting standard which reflects the long term nature of any pension promise. But bringing snap-shot accounting into the accounts of the sponsoring company will not only invite confusion among investors, but will inevitably lead firms to question whether it is worth their while continuing to offer a good quality DB pension scheme,” he says.
In contrast, the accountants PricewaterhouseCoopers (PwC) says FRS17, which stipulates that pension funds must now show surpluses or deficits on their balance sheets, is superior to the standard it replaces and brings UK pension fund accounting more in line with international practice.
According to its research, PwC finds that FRS17 scores better when judged against certain criteria, including clarity and quality of information, than its predecessor, which was widely criticised in the industry for failing to show any surpluses or deficits accrued by pension funds.
However, PwC admits that the new standard does place pressure on companies to reveal information that could unnerve shareholders and add instability to company accounts.