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Experts fear pension chaos.

Document Cited in Related
Vincent
AuthorTownley, Gemma
PositionNew pension scheme accounting standard - Brief Article

Actuaries are warning that FRS 17 could increase pension costs and prompt companies to close schemes to limit future volatility

Flexibility is essential when applying the new pension scheme accounting standard (FRS 17). Actuaries are highlighting concerns that the standard could drive firms away from defined benefit pension schemes towards defined contribution schemes that give no balance sheet volatility.

"Companies will experience volatility in their results for pension costs and balance sheet figures from year to year unless explicit changes in investment strategy are made, essentially exchanging equities for investment in corporate bonds," warned Robert Hails, chairman of the Association of Consulting Actuaries' accounting standards committee. "This will put pressure on pension schemes either to accept lower long-term returns from bonds -- increasing pension costs -- or to risk sponsoring employers closing schemes to limit future volatility."

He argued that safer investment strategies would also lead to fewer schemes investing in areas such as venture capital, and would widen the debate over the future of some defined benefit schemes. "FDs don't like surprises," he explained.

Gordon Pollock, worldwide partner at William M Mercer agreed. "We expect finance directors to show more...

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