Accounting for Pensions Survey 2000 
Detailed analysis of Reports and Accounts


We analysed and ranked the disclosures of 84 companies, as listed in Appendix 2.

For this purpose, we excluded 10 companies who had only defined contribution schemes, and three companies which did not report pension costs under UK GAAP conventions (Allied Zurich, Anglo American and Shell).

We also excluded Billiton, Old Mutual and South African Breweries, which are essentially overseas companies who have chosen to be quoted on the London Stock Exchange.For our analysis of actuarial assumptions, we analysed 83 companies. We excluded WPP, who disclosed some of their assumptions as ranges of values that were too wide to interpret satisfactorily.

We have analysed the disclosures in the same way as last year. Virtually all companies disclose certain basic items. For example, although not all companies disclosed the assumed rate of investment return, all disclosed enough to know the return relative to salary growth.

We believe that there are four key other items that have to be disclosed for a full understanding. We set these out below, with an explanation of an attaching "score". All companies are given a starting score of 10 for the basic items.

  Disclosure

 Score
Dividend
growth rate
or actuarial
asset value		 Where asset valuations are based on the discounted income method, therefore the dividend growth assumption has a very important impact on the results. We accepted either the absolute dividend growth rate or the rate relative to the investment return.

Nine companies did even better than this and quoted the actuarial value used. This is better because the dividend growth assumption is the main, but not the only, assumption in the asset valuation process.

For some companies it was clear that assets were taken at full market value. These and companies quoting the actuarial value of assets were all awarded a score of 5, as for companies disclosing the dividend growth rate.

62 companies achieved a score of 5 for disclosure of the assumption used to value assets, compared to 56 last year.

 5
Pension increases The assumed rate of pension increases is necessary for a full understanding, but there is less variability of cost from this assumption. 92% of companies disclosed this item, which is a great improvement on last year's survey (81%).

 1
Split of
regular cost
and variation		 The regular cost is the ongoing cost to the company of providing the benefits of the pension scheme ignoring surplus or deficit. Disclosure of this item is, therefore, very helpful. 36% of companies separately included this compared with 21% who did so last year. This again is a great improvement, even though it remains disappointingly low.

 2
Method of spreading The actual pension cost will be lower or higher than the regular cost, on account of spreading the surplus or deficit. There are a number of ways this can be done, and each spreading method gives a different pattern for future pension costs. 45% of companies disclosed the spreading method compared to 36% last year.

This gives an aggregate ranking from 10 to 20. A full list of each company's ranking is set out in Appendix 2. The spread of ranking scores is set out below.

Chart: Ranking

 2
Ranking Top ranking (20) was achieved by BAA, Barclays, BOC, Centrica, Daily Mail, Glaxo, Hilton, Legal & General, Reckitt Benckiser, Reed Elsevier, Schroders, Standard Chartered and Thames Water.

No companies scored the minimum ranking of 10 this year.

The average ranking this year was 1.0 higher than last year. This average ranking improvement actually relates to just 20 companies who have improved their disclosure. Companies tend to change their disclosure only following new actuarial valuations, which are generally triennial. This suggests that improvements might have been hoped for from only a third of surveyed companies, some of which would already have full disclosure. In this context the improvements this year are very pleasing.
Quoting
ranges		 A number of the companies quoted ranges for the assumptions used. In all cases bar one (WPP) the ranges were very narrow, and the accounts gave a good indication as to the basis used.
WPP WPP stated that salary growth was assumed to be between 2% pa and 8% pa. This is tantamount to no disclosure at all, since no useful information is given. A range was also quoted for the pension increases assumption, but we allowed a score of 1 on our ranking for this. In part this was because the range was less extreme, but also we recognise that defined benefit pension cost was only a quarter of the total pension cost for WPP and that full disclosure of the assumptions was therefore less important.
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