Skip to main content
The Actuary: The magazine of the Institute and Faculty of Actuaries - return to the homepage Logo of The Actuary website
  • Search
  • Visit The Actuary Magazine on Facebook
  • Visit The Actuary Magazine on LinkedIn
  • Visit @TheActuaryMag on Twitter
Visit the website of the Institute and Faculty of Actuaries Logo of the Institute and Faculty of Actuaries

Main navigation

  • News
  • Features
    • General Features
    • Interviews
    • Students
    • Opinion
  • Topics
  • Knowledge
    • Business Skills
    • Careers
    • Events
    • Predictions by The Actuary
    • Whitepapers
  • Jobs
  • IFoA
    • CEO Comment
    • IFoA News
    • People & Social News
    • President Comment
  • Archive
Quick links:
  • Home
  • The Actuary Issues
  • September 2014
09

DB schemes 'need to review plan rules'

Open-access content Monday 22nd September 2014

Mercer has urged defined benefit pension schemes to review the rules and accounting standards that they report to for tax purposes in 2015.

2

Next year the UK will align itself more closely with international standards, Mercer said, going on to note that proposed changes to pension accounting standards could cause balance sheet shocks.

This advice follows moves to clarify how pension scheme deficits and surplus should be recognised on company balance sheets under both International Accounting Standards (IASB) and UK Accounting Standards.

According to Mercer, a pension surplus can continue to be recognised as an asset. However, no asset should be recognised if, unusually, the trustees have powers to unilaterally spend the surplus by improving member benefits or by winding up the plan with the insurance company.

Furthermore, where trustees have these unusual powers, if the company agrees to make prudent contributions to the plan that exceeds the expected cost of providing the benefits then these extra contributions should be recognised as a liability on the balance sheet.

Warren Singer, Mercer's UK head of pensions accounting, said: 'The case identified by the IASB, although unusual, could increase pension liabilities on the balance sheet by over 25%.

'Employers should review their DB plan rules to ensure that no unusual trustee powers exist. If trustees do have these powers there will be a number of options to consider, including using funding mechanisms that are external to the scheme, such as escrow accounts, to improve benefit security, negotiating an amendment to the rules, or, where possible, adopting a new UK Accounting Standard that may mitigate the issue.'

Mercer said UK companies would generally be able to report for statuary and tax purposes under one of two new accounting standards issued by the UK’s Financial Reporting Council. They had the option of FRS101, which was more aligned with international standards, or FRS102, that takes a simplified approach.

He added: 'For a UK company choosing to report under the simplified approach of FRS102, there may be a significant difference in how defined benefit pension plans are shown on the balance sheet. The FRS102 liability is based on the expected cost of providing the pension benefits and the FRC proposes that additional deficit contributions agreed with the trustees for prudence do not need to be added to the balance sheet.'

Singer said as the treatment of pensions on the balance sheet is clarified, such companies should review which accounting standard they would be using for UK statutory and tax purposes from 2015.

This article appeared in our September 2014 issue of The Actuary.
Click here to view this issue
Filed in:
09
Topics:
Regulation Standards

You might also like...

Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

Actuarial Associate Consultant (UK-wide)

England, Manchester, Greater Manchester / England, West Midlands, Birmingham / England, London
£35000 - £53500 per annum + DOE + bonus + benefits
Reference
120865

Origination/ Pricing Analyst (Bulk purchase annuities)

London, England / London, City of London, England
£55000 - £75000 per annum + DOE + bonus + benefits
Reference
120864

Covenant Consultant

Leeds
£60-80k plus bonus and benefits
Reference
120863
See all jobs »
 
 

Today's top reads

 
 

Sign up to our newsletter

News, jobs and updates

Sign up

Subscribe to The Actuary

Receive the print edition straight to your door

Subscribe
Spread-iPad-slantB-june.png

Topics

  • Data Science
  • Investment
  • Risk & ERM
  • Pensions
  • Environment
  • Soft skills
  • General Insurance
  • Regulation Standards
  • Health care
  • Technology
  • Reinsurance
  • Global
  • Life insurance
​
FOLLOW US
The Actuary on LinkedIn
@TheActuaryMag on Twitter
Facebook: The Actuary Magazine
CONTACT US
The Actuary
Tel: (+44) 020 7880 6200
​

IFoA

About IFoA
Become an actuary
IFoA Events
About membership

Information

Privacy Policy
Terms & Conditions
Cookie Policy
Think Green

Get in touch

Contact us
Advertise with us
Subscribe to The Actuary Magazine
Contribute

The Actuary Jobs

Actuarial job search
Pensions jobs
General insurance jobs
Solvency II jobs

© 2021 The Actuary. The Actuary is published on behalf of the Institute and Faculty of Actuaries by Redactive Publishing Limited, Level 5, 78 Chamber Street, London, E1 8BL. Tel: 020 7880 6200