EUROPE - Revisions to international accounting standards will bring with them a number of "fundamental choices" for some of Europe's larger pension funds, according to Mercer.

Partner Deborah Cooper said changes to IAS19 accounting rules would "reinforce" UK-based companies' wishes to de-risk their defined benefit (DB) pension schemes, as exposure to higher-risk assets would no longer be rewarded in profit and loss statements.

Speaking about the situation facing companies globally, Cooper said: "We expect companies to be more careful about how they choose to value their pension liabilities, now that the effect of the discount rate will hit balance sheets immediately and also affect the bottom line."

She added that, as the bond market for high-quality issuances was not terribly deep, the distortions to yields of companies in the financial sector as a result of the euro-zone crisis would also have an impact.

Cooper said that although the changes to IAS19 did not amount to a re-write, the changes could still be interpreted in different ways.

"Some companies will face fundamental choices about how they should adopt the revised standard, since it could affect the way they are viewed by investors," she said.

Explaining the problems facing Dutch companies in relation to their pension funds, Pieter Zeegers, a senior associate in the Netherlands office, explained which factors would mean a scheme would be classed as defined contribution (DC), rather than DB.

"If underfunding results in reduced benefits rather than increased employer contributions, then the risks effectively rest on the members, so the company can account for the scheme on a defined contribution basis," he said.

He noted that, in cases where a company was expected to pay beyond regular contribution rates, the fund would have to remain a DB scheme under IAS19.

Despite the majority of large Dutch schemes being sector-wide funds, a number of them retain direct links to sponsoring employers - such as the scheme for Bancassurer ING.

The scheme has recently been involved in a dispute with its sponsor over the payment of funds required for indexation.

In Switzerland, principal Andre Tapernoux noted that the contributions paid and the resulting accrual differed depending on the age of the scheme member.

"IAS19 does not permit employers to delay recognising 'back-end loaded' provision, but employers should be able to use future employee contributions to offset part of the additional DB obligation, although there seem to be various possible approached for achieving this," he said.

A number of Swiss companies have recently introduced 'pure DC' elements into their retirement provision to offset the problems posed by IAS19 revisions.

Most recently, pharmaceutical company Novartis said it had launched a DC fund for its high earners to enrol into, taking advantage of revised second-pillar regulations introduced five years ago.