Proposals to simplify financial reporting rules could involve considerable expense for UK pension schemes because it will treat them like banks and insurers, the National Association of Pension Funds said today.
Responding to an Accounting Standards Board consultation on the future of financial reporting, the NAPF said the plans would involve pension funds having to disclose 'unnecessary' detail in their financial reports.
Having to report information on the financial instruments they use, such as derivatives and hedge funds, would create major costs for large pension schemes that tend to use more complex investment and risk mitigation strategies.
Labelling the proposals 'counter-productive', the NAPF said: 'We believe that including pension schemes within the definition of "financial institution" is incorrect, particularly as this appears to be the basis for requiring pension schemes to make the same disclosures as banks and other financial institutions, with additional disclosures on top.
'Treating pension schemes like other financial institutions for the purposes of disclosures fails to recognise their very different nature (as reflected in their different legislative regime) and the very different purpose for which their financial statements are prepared.'
The ASB, which is part of the Financial Reporting Council, is proposing three new financial reporting standards to simplify and consolidate the UK's Generally Accepted Accounting Practice. The new rules are set to take effect on January 1 2015.
Darren Philp, NAPF policy director, said the disclosure requirements for pension funds offset what was an otherwise good set of proposals.
'We support greater transparency, but these new rules will do nothing to help scheme members and their advisers. Instead, they will increase the costs for large pension funds,' he said.
'The Accounting Standards Board should remove pension funds from the category of financial institutions and eliminate the additional disclosure requirements. The existing disclosures are perfectly adequate as they are.'
The NAPF is also concerned that the new disclosure requirements would unbalance the structure of the pension funds' financial reports and confuse scheme members for whom they are intended.
Currently, pension funds report on the basis of the Pensions Statement of Recommended Practice, which specifies the content of their annual reports.