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The Actuary The magazine of the Institute & Faculty of Actuaries

Actuaries refuse to salute new pension standards

A new paper from the Accounting Standards Board (ASB) and the European Financial Reporting Advisory Group (EFRAG) has met with a dismayed reaction from members of the Actuarial Profession.

Titled The financial reporting of pensions, the paper (available from www.frc.org.uk/asb) is intended to contribute to the eventual development of a fresh international accounting standard to replace both IAS 19 and the UK’s own FRS 17.

In contrast with the latter, which allows pension liabilities for the purpose of investor reporting to be discounted at the yield on AA-rated corporate bonds, the ASB/EFRAG thinking now is that pension liabilities should be discounted at the (government bond-based or swap-based) risk-free rate.

The common theme of the vocal reaction from actuaries and others was that such a change would lead to the final demise of defined-benefit pensions in the private sector. Actuaries calculated that the total deficit to be accounted for by the largest companies would increase by the order of £100bn. They also suggested that the probable increased deficit volatility in future would deter firms from operating defined-benefit schemes matched to a substantial degree by equities.

It remains to be seen whether these concerns will lead the IASB to a different approach in dealing with one of the hottest accounting potatoes for the development of global standards.