UK – Consulting firm Towers Perrin has warned companies not to make rash decisions when dealing with pensions issues – saying there is a danger of being “too decisive”.
Nigel Bateman, UK head of the firm’s global consulting group, said the classic mistake companies make is think that a move to a defined contribution arrangement will reduce costs. “A move to DC does absolutely nothing” to reduce defined benefit liabilities.
He said that sometimes companies’ pension decisions are based on the desire to appear decisive to investors and the press. “There is a danger of being too decisive.”
“There is a whole bunch of different solutions that you can take,” he told journalists. “These are large business decisions.”
He said firms need to understand the implications of their decisions. Current topics of debate, such as whether to switch to bonds or to defined contribution, could lead companies into problems that they had not anticipated.
In the light of such questions, Towers Perrin welcomes the move to market-based pensions accounting, such as FRS17 in the UK, which takes a snapshot view of pension assets and liabilities. “It’s good in that it’s consistent and it gives you a measure,” Bateman said.
Bateman’s colleague, senior consultant Christine Farmer, said that companies already had pension costs, it’s just that they aren’t transparent under the current SSAP24 standard. Anomalies across large companies, some of which have pension liabilities they don’t even know about, were gradually being “flushed out”.