UK – The funding deficit for UK pension schemes is around 130 billion pounds (197.5 billion euros) under the FRS17 accounting rule - although the actual deficit is around half that figure, according to estimates by pension consultant Watson Wyatt. It calls the rule “a highly volatile indicator”.
“The total FRS17 deficit for UK corporate pension funds was approximately £130 billion at the end of 2002,” the company said in a statement. But by its own estimate, the funding is about half that, at around 65 billion pounds.
“The difference between the FRS17 deficit and the funding deficit is due to different approaches with regard to the assumptions made about the expected future returns on the assets held by pension funds,” it said. “There is no constant relationship between FRS17 and funding levels.”
It estimates that while the FRS17 deficit is currently about double the funding deficit, the two measures would have been very similar a year ago.
"The majority of the FRS17 numbers that can be drawn from companies' forthcoming 2002 annual reports are going to be very big and very negative," said Robert Hails, a partner at Watson Wyatt. The firm estimates that UK pensions schemes will need up to an extra 10 billion pounds a year in order to make up the current funding deficit.
It called the FRS17 accounting standard, which takes a snapshot of a pension fund’s liabilities, “a highly volatile indicator of a pension fund's position”. The Accounting Standards Board has postponed the full implementation of FRS17 until 2005. But companies still have to disclose FRS17 figures in the notes to their 2002 accounts, Watson said, adding that forthcoming UK companies’ annual reports will make “interesting reading”.