Introduction 1. Summary 2. Introduction 3. Main findings 4. Is final salary provision continuing? 5. Detailed analysis of Reports and Accounts 5.1 Disclosures 5.2 Actuarial assumptions Appendix 1 - Glossary of terms* Appendix 2 - Detailed disclosure listing Appendix 3 - Changes to pension cost accounting

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Accounting for Pensions Survey 2000
Introduction

	This is our seventh annual survey in which we analyse the pension cost disclosures in the companies comprising the FTSE 100 index as at 1st January 2000, looking at accounting periods ending in 1999. The companies making up the FTSE 100 index change over time - fifteen companies were new in 1999. Comparisons must, therefore, be handled with care, but general trends are still evident.
The aim of SSAP 24	SSAP 24 has been in existence for twelve years. It is supposed to ensure accounting for pension costs on a systematic and rational basis over the employees' careers with sufficient disclosure of the assumptions used to allow informed readers of the accounts to understand the accounting treatment. The assumptions used should in all cases be a "best estimate" by an actuary. However there is no one scenario for the future that is more likely than any other, and our surveys have shown that in practice actuaries have used a wide range of assumptions to determine cost. Different assumptions can dramatically affect pension cost. For example a 1% reduction in the assumed investment return on its own could increase the pension cost by typically 20-30%, yet our survey shows a range of over 2½% for the assumed investment return! It follows that full disclosure of the assumptions used to calculate the pension cost is essential if accounts are to be of any help to the users. Our survey reveals the extent to which this has happened.
SSAP 24 to change	In November 1999, the Accounting Standards Board (ASB) issued FRED20, an exposure draft of a very different reporting basis for pension accounting. The proposals are highly contentious. They move away from the concept of cost assessment using the actuary's best estimate to one determined on assumptions which are an odd mixture of the prescriptive and the flexible. There was a mixed reaction to the proposals in FRED20, with many actuaries and business representatives urging that important aspects of it should be changed. However the ASB has decided to proceed very much as in the original proposals. In Appendix 3 we set out an extract of our Briefing Note on FRED20 which gives more detail on the proposals. The ASB are likely to introduce the new standard in three stages: For accounting periods ending after July 2001 to June 2002, the balance sheet effect of using the new standard must be disclosed. The existing standard will continue to apply for the primary statement, so that the new disclosure will be in parallel with the current method. It will not normally be possible to reconcile the two disclosures. For accounting periods ending July 2002 to June 2003, the current standard will again apply but in addition the results on both balance sheets and profit and loss must be disclosed on the new standard. For subsequent periods the new standard will apply for the primary statements. By then, full comparison with the previous year will be possible because of earlier disclosures. The existing standard will no longer apply.
Pressures on defined benefit schemes	There are strong pressures on defined benefit pension schemes that will tend to increase contributions required from employers. The 1997 ACT change has increased long-term costs. Interest rates have fallen to very low levels, making pensions very expensive if the Trustees choose to invest in bonds to meet liabilities on a low-risk basis. Rates of mortality are projected to decrease substantially in future. This is good news for us all, in that a longer life is of course to be welcomed, but it could increase the cost of pensions by around 10%. A further concern is the statutory check on funding levels, the Minimum Funding Requirement (MFR). Despite very high market returns, funding levels measured on the MFR have generally reduced. The new accounting standard proposed by FRED20 could increase pension cost, and it will certainly become more volatile. On top of these financial issues the regulatory environment has become ever more onerous. The Pensions Act 1995 has been in full effect for over three years, and the Occupational Pensions Regulatory Authority (OPRA) which polices the Act has got into its stride. The Pensions Ombudsman continues to make some headline-grabbing decisions that worry employers. These non-financial issues also affect defined contribution schemes, but to a lesser extent. In this difficult environment, are companies moving away from defined benefit schemes? Our survey shows the state of play amongst some of the UK's largest employers.