EUROPE - Pension schemes will rethink their asset allocation to mitigate risks exposed by changes to pension fund reporting due to come into force in 2013, according to consultancy Mercer.
The changes announced today - amendments to the International Accounting Standards Board (IASB)'s IAS19 Employee Benefits - include eliminating the 'corridor method' that allows pension schemes to defer the recognition of gains and losses.
Under the new rules, defined benefit (DB) schemes will have to streamline changes in assets and liabilities reporting to identify which changes stem from day-to-day operations.
DB schemes will also be required to provide better information about the characteristics of the plan and the potential risks of participation to members.
According to the IASB, investors in scheme sponsors will get "a much clearer picture" of the firm's pension obligations and their impact on its financial performance.
However, the appearance of pension fund surpluses and deficits in financial statements could wipe £10m (€11.3m) off reported earnings for UK companies alone, according to both KPMG and PwC.
Brian Peters, pensions partner at PwC, added: "Making the additional disclosures will prove onerous, and, for some firms, they will also increase balance-sheet volatility, which could cause difficulties for banks and insurers with their capital provision."
The changes are designed to stop companies using their pension schemes to enhance reported earnings and effectively make their pension deficits look smaller.
However, according to Mercer, the net result could be a shift out of equities into bonds as pension fund managers question whether taking risks necessarily creates shareholder value.