An associate at pension advisor Aon Hewitt has said he does not agree with the findings of the Accounting for Pensions report which was commissioned by the UK's National Association of Pension Funds (NAPF) and released on 7 September.
The report, which was written by Dr Iain Clacher and Professor Peter Moizer from Leeds University Business School, concludes that the current accounting standards for pension schemes are "undermining pension provision in the UK".
"It's helpful to have a debate, but the report seems to be missing the point as to what accounting for pensions is all about," Simon RobinsontoldPension Funds Insider.
"Whether it is IAS19 or FRS17, what they are trying to do is provide interested parties, such as employees, lenders or investors, with information about a company's pension scheme. Two key points are transparency and objectivity which will enable all parties to make more informed decisions."
Aside from not agreeing with the content, Robinson also said that he does not believe the report actually offers any solutions. "It's easy to be critical of the current standards, but the solution proposed by the report is less objective and less transparent. It's not moving in the right direction and is actually a backward step."
Robinsonargues that while there are imperfections with the current standards, they do have a positive impact.
"They are transparent, objective and very comparable. For example, every company has to use AA corporate bonds for discounting, and although there is some flexibility as to how you derive this rate, you are going to come up with fairly similar outcomes if you ask different actuaries. So it helps with that comparability and the disclosure you get," he said, explaining that this is also the benefit users of the accounts get from the current standards.
"An informed user can now adjust the results for their view of the risks and the liabilities."
"The complaints made in the report are not correct – the accounting standards do require qualitative disclosure of items that help users understand the risk. It's not just the balance sheet, P&L and OCI (Other Comprehensive Income) figures."
Robinson also points outthat however much you try to put one figure on a pension scheme, you can always argue that it is the wrong figure.
"This won't change with different accounting standards," he said. "It is always a snapshot and one figure can never be the best estimate, never the one right answer. But what the standards do is try to give users of the accounts enough information to be able to come to their own conclusions."
Where there could be improvement, he says, is in better information about the future contribution requirements of the company. "However, the changes to IAS19 that have been announced recently do that."
Robinson also brings up another salient point; regulatory environments differ around the world. While here in the UK we might find ourselves in a certain situation when it comes to accounting, in some other European countries, these points might not be an issue. In the Netherlands for example, schemes adopt prudent funding and investment strategies anyway. But accounting standards need to be able to cope with regulatory environments worldwide, not just ones specific to each country.
08.09.2011
azeevalkink@wilmington.co.uk
