SWITZERLAND - New accountancy rules under revised IAS19 standards will paint a "false picture" of pension funds and "ruin" occupational pensions, according to Herbert Brändli, head of the Profond multi-employer Pensionskasse.
In Switzerland, more and more companies are switching to the IFRS accounting standards, which also means they will have to apply the revised IAS19 standards for their pension assets from 2013.
But Brändli said the new standards would "burden" company accounts, as the so-called 'corridor' was scraped, and actuarial gains and losses from defined benefit pension funds had to be recognised immediately in the profit and loss statement and set off against equity.
For years, there has been a debate between Switzerland and the International Accounting Standards Board (IASB) on whether the country's mandatory second-pillar pensions were in effect defined benefit schemes, as they are based on fixed contributions but offer a certain guaranteed benefit level.
The Swiss Association of Actuaries, in its 2008 statement on the preliminary draft of the IAS19 changes, said: "According to Swiss Law and general public consensus, such plans are considered as defined contribution type of plans, and, therefore, the classification of these plans as defined benefit by IAS19 is controversial and frequently criticised."
Swiss actuaries repeatedly pointed out that IAS19 failed to take into account the strict separation between pension assets and company equity, which is further decoupled by the existence of an insolvency fund making sure pension assets survive a collapsed company.
Brändli warned that the application of IAS19 standards would result in a "false picture".
"Despite unchanged contribution liabilities, the equity will be very volatile," he said, adding that companies would therefore try to reduce pension benefits after having suffered actuarial losses in the Pensionskasse to preserve equity.
On the other hand, they will reduce contributions after actuarial gains so as not to burden the profit and loss statement too much.
"Either way," Brändli said, "the new accounting standards will push occupational pensions to a lower level."