UK – A new survey has found wide variations in assumptions used by companies and actuarial advisers to calculate FRS17 pension liabilities.

Pension Adviser Review has surveyed nearly two thirds of FTSE 350 companies to determine pension liabilities. “We looked closely at the all-important actuarial assumptions disclosed since 2002 and, frankly, were very surprised at what we found,” said PAR founder Keith Faulkner, a former partner at Mercer.

“Although the company has the final say on the choice of assumptions, they are required to take actuarial advice so the end result will be heavily influenced by the big actuarial firms,” he said.

“Remembering that a change of just a half percent in one or more of the key assumptions can change liabilities by 7%, 8% or more, we were surprised to find that differences of up to three per cent were not uncommon, even among companies advised by the same actuarial firm.”

The survey covers accounting periods to 2002 and covers discount rates, salary increases and “The Gap”.

This is an unofficial term used by actuaries to describe the difference between the discount rate and the salary increase rate, Faulkner says in a guide to finance directors.

He added: “It is far more meaningful in terms of the effect on liabilities than looking just at either of the two assumptions in isolation.”

He suggests the gap could differ by up to 300 basis points – both across all companies and also for companies that are advised by the same actuarial firm.

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