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IAS19 to affect pension design – Watson Wyatt

EUROPE – Consulting firm Watson Wyatt says the IAS19 accounting standard for retirement benefits will affect the way companies consider pension scheme obligations and plan design.

The standard – which takes a market view of pension liabilities that is similar to the UK’s FRS17 standard - has also faced critical comments from the German and Dutch accounting standards bodies.

"While IAS19 will certainly not be the only factor driving change, because it will encourage more board-level interest in pension obligations it will inevitably lead boards to ask questions such as 'have we got the right benefit design?' and 'have we got the right investments held against the benefit obligations?' This in itself is likely to lead to changes,” said Watson partner Eric Steedman in a release.

He added: “The introduction of FRS17 in the UK has been cited as one of the drivers moving companies from DB defined_benefit towards DC defined_contribution.

“It would be a bridge too far to say that IAS19 will lead to a wholesale move towards DC in Europe, but it will inevitably have an effect on the way companies consider their pension obligations and plan design."

With limited exceptions, IAS19 must be used by listed companies in the European Union for their consolidated accounts by 2005.

The firm said: “Watson Wyatt recommends that companies that have not yet begun preparing for the introduction of IAS19 should consider drawing up an rigorous project plan over the next few weeks.”

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