UK – The average funding level of UK pension funds, as revealed under the new accounting standard, FRS17, is likely to have fallen to 87% since the beginning of the year, says Brian Wilson, a consultant at Hewitt, Bacon & Woodrow (HBW) .
Wilson says the declines in the markets since the end of last will have had an impact to bring the average funding level below 100%, which was the average that levels had fallen to in 2001 according to a report just published by HBW into the effects of FRS17.
He warns we will have to wait until next year to see how volatile balance sheets have really become in depressed markets and under FRS17.
“Unless equity markets improve dramatically, the second year FRS17 disclosures will make interesting reading as the true volatility of balance sheets under the new accounting standard becomes apparent,” he comments.
However, Wilson says there is no need for concern as the FRS17 figures do not relate directly to the security of members’ benefits. “It is extremely rare for solvent companies not to make good funding deficits in schemes,” he explains.
HBW consultants would like to see pensions liabilities become more a more prominent feature of analysts’ work, as Wilson believes more or less half the 69 companies that took part in the survey will now have liabilities exceeding 20% of their market capitalisation.
“Financial analysts should be looking hard at pension liabilities to see whether changes in levels of cover might affect company share price. However, we do not believe that analysts are currently giving pension liabilities the attention they deserve.”