Following the publication of the Association of British Insurer's research paper on 'Understanding Companies' Pension Deficits', ABI's director general, Stephen Haddrill, has called for the need of a better understanding of deficits.
Mr Haddrill stated: We need to understand deficits better to devise investment strategies which really deliver the best value for beneficiaries and sponsoring companies. If trustees and sponsors do not have a complete picture, pensioners could lose out badly.
The paper analyses existing ways of measuring the pension deficits of occupational defined benefit schemes. It concludes that FRS17 numbers alone give an incomplete view, and proposes use of other data alongside FRS17 to improve understanding.
This paper is a valuable contribution towards improving the clarity of information on pension deficits. We encourage international standard setters to draw on its findings in setting a new accounting standard, and trustees to use it in assessing the health of their pension fund, he added.
The research paper was sparked by concern that volatile deficits reported under FRS17 could spur pension funds to adopt investment strategies that failed to maximize returns for beneficiaries.
The paper concludes that while the FRS17 accounting standard has provided a useful headline figure of a company’s pension deficit, additional information, particularly relating to the timing of cash-flows, is needed to build up an accurate picture of the scheme’s ability to meet its pension liabilities. As a result, investors can make more informed decisions, and benefit trustees and regulators by allowing them to identify schemes that are genuinely most at risk.