Half of Pension Schemes Believe Their Accounts Should Report Liabilities As Well As Assets, Says Survey

Michelle Remo, “Big 4″ observer
January 13, 2012 /

Half of pension schemes believe their pension liabilities should form part of their annual accounts and be subject to audit, according to a KPMG survey of 250 major pension schemes with assets ranging from £100m to over £1bn.

But the other half take the opposite view, finds the KPMG survey.

And according to KPMG, this divergence of opinion presents a challenge to accounting standards setters in determining the rules for pensions accounting.

Kevin Clark, associate partner in Pensions Audit at KPMG in the UK, commented: “This split opinion reflects the range of views in the marketplace and the results suggest that a flexible approach from the Accounting Standards Board when it provides guidance on pension scheme accounting next year would be welcomed.”

Currently only scheme investments and scheme transactions are included in scheme financial statements and subject to an annual audit with the liabilities being dealt with in the actuarial valuation.

The Accounting Standards Board (‘ASB’) is currently developing proposals to bring UK accounting into line with International Financial Reporting Standards.

The ASB has indicated they will provide guidance on pension scheme accounting in an exposure draft to be issued early this year. The results of the KPMG survey suggest that a flexible approach, incorporating the options available under international accounting rules, would be widely supported.

There has been considerable deliberation about whether the actuarial liabilities should form part of the annual audited accounts to give a more rounded picture of the financial situation of pension schemes.

The Pensions Regulator, the Pensions Research Accountants Group (setters of the Statement of Recommended Practice on financial reports of pension scheme) and the Accounting Standards Board have all conducted reviews on this matter, with varying views and outcomes.

Issues around incorporating liabilities into the audited balance sheets of pension schemes

The scheme accounts will be more useful to users as they will disclose the overall financial position of the scheme, thus showing how trustees have managed the overall financial affairs of the scheme as well as their stewardship of scheme assets.

Including liabilities in the accounts will open up the actuarial valuation to professional independent scrutiny by an annual audit. Currently only scheme assets are subject to audit. It may enable trustees and sponsors to manage their schemes better through more comprehensive financial reporting of scheme financial affairs.

A scheme accounting liability is likely to be different from liabilities determined for the purposes of scheme funding and employer pension reporting and could therefore add to confusion.

It will add additional expense to the scheme running costs through additional accounting and audit requirements. It will add additional complexity to scheme accounts and, given the low take up of scheme accounts, provide limited value to members.

Kevin Clark concluded: “Unfortunately, there doesn’t seem to be a ‘one size fits all’ approach here but hopefully the ASB can find a solution that can accommodate the varying needs of differing pension schemes.”


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