Government plans to change how company directors pensions are reported are flawed and the results of the process will substantially mislead shareholders, the Association of Consulting Actuaries said today.
The proposals were outlined by the Department for Business, Innovation and Skills in June as part of a package of regulatory changes aimed at increasing transparency and shareholder control over directors' pay and other renumeration.
Currently, firms report directors' pensions to shareholders on a cash-equivalent basis, showing the capital value of the benefits accrued to date.
But, under the government's plans, they will be expected to report their directors' total pension entitlements using the methodology that is currently used by Revenue and Customs to assess the limits on a person's total lifetime pension saving below which they can benefit from tax relief.
Responding to a consultation on this proposed change, the ACA said the results of market testing carried out by the Financial Reporting Council showed companies were against using the 'HMRC methodology'.
Companies 'were split between two methods that seek to place a realistic and market-related value on the pension accrued during the year', it said. 'It seems strange that a completely arbitrary approach is being proposed because the companies could not decide which of the other two methods to champion.'
It added: 'The HMRC methodology will not deliver a figure that relates to the benefit received by the individual. So whilst this approach could be designed so that it is applied "consistently across all companies" it would be at the price of a complete masking of differences in the benefits that are accruing.'
Instead, the ACA called for changes to be made to the current cash-equivalent system. David Everett, chair of its pension schemes committee, said: 'We believe that a cash-equivalent based system is the best approach to providing appropriate information to shareholders about defined benefit pensions; but that the current system should be reformed by making it consistent with the approach that has been used for many years under the Listing Rules. It should not be replaced by the HMRC methodology which is inappropriate for the purpose and will substantially mislead shareholders.'
The business department's consultation closed last week.