TKP Pensioen warns on IFRS impact

NETHERLANDS - The introduction of the new European accounting standard IFRS in the Netherlands could lead to the closure of dozens of small pension funds, says an executive at TKP Pensioen.

Anne Laning, controller of the seven-billion euro TKP Pensioen fund, which looks after the pensions of some 220,000 workers of Dutch postal group TPG and telecommunications giant KPN, said the new accounting standard will increase administrative costs for all pension funds.

“The big pension funds have got the resources to deal with all the extra red tape, while the middle ones will probably outsource some of the extra work. But I fear the smaller pension funds will probably be wrapped up, transferring the funds to parties like Aegon or Interpolis or an industry wide pension fund,” Laning said.

Laning was speaking at a seminar for corporate and institutional clients organised by life insurer Aegon in The Hague.

A few years ago, there were roughly 1,000 pension funds in the Netherlands. That number currently stands at 800, and Laning can see it going down even further. “The new rules will make life increasingly difficult for the smaller funds.”

IFRS will be implemented in the Netherlands in 2005. The new accounting rules force companies to ‘consolidate’ their pension funds into their annual accounts, making them more transparent.

One of the consequences of the new rules is that pension funds will have to opt for a defined contribution or defined benefit-style pension.

“Most pensions in the Netherlands are not DC or DB, but usually a combination of both. From next year, however, companies will have to choose between the two. This could lead to companies making mistakes, and unjustly qualifying their scheme as either DC or DB, which could trigger claims from their participants,” says Laning.

Over the past year or so, the Dutch media have repeatedly run doomsday-style headlines, saying the new standard could significantly impact the balance sheets of some of the nation’s biggest companies. Experts have also warned the new standard could make pensions more expensive.

Laning disagrees. “The changes in financial reporting rules do not influence the total costs on the long term, they only influence the way they will be spread out over the years. But administrative costs will no doubt rise because the new standard forces pension funds to make incredibly complicated calculations on an annual basis.”

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