Accounting for Pensions Survey 2000
Summary


 
  • The FTSE 100 companies employ between them some 3.5 million people in the UK. They have pension assets worth about £250 billion. Their annual pension cost is over £3 billion, equal to a little less than £1,000 pa for each employee.

  • Every year Lane Clark & Peacock publishes "Accounting for Pensions", an authoritative survey of practice under SSAP 24, the standard that regulates pension cost accounting and disclosure of pension information in UK company accounts.

  • For the last six years our surveys have highlighted the poor level of pension cost disclosure. At last in 1999 twenty companies improved their disclosure, and now thirteen score the maximum in our ranking compared to nine last year. On the other hand, one third continue to disclosure inadequate information.

  • The improvements are too late to prevent the present standard for pension cost accounting from being scrapped. A new standard is to be published at the end of this year. For two years companies will have to disclose results on both the current and the new approach, which will be complex and confusing, although the primary statements will be unaffected.

  • The new standard will deal with pension finances in a fashion that is quite different from that used to determine company contributions in defined benefit schemes, and will lead to volatility in balance sheet numbers and, to a lesser extent, pension costs.

  • A particular problem with the new standard is that there is considerable flexibility over the choice of key assumptions, which could be used to directly increase headline profits with no offsetting reduction in later years. This will make accounts open to manipulation. The ASB hope to control such manipulation by greater disclosure. If the experience of SSAP 24 disclosure is a guide, this may be an unreasonable hope.

  • The 1997 tax change which removed tax credits on UK dividends, the Advance Corporation Tax (ACT) change, has greatly reduced pension schemes' income but this year's survey provides further evidence that the increased cost - up to £3 billion a year for all UK pension schemes - is being deferred by changing actuarial assumptions.

  • The move to defined contribution continues. Many of the newer entrants to the FTSE 100 have chosen defined contribution pension arrangements, and a few employers have shut their long-standing final salary schemes to new entrants. However, we show that the picture looks very different if attention is given to the number of employees: over 98% of FTSE 100 employees are in companies with mainly defined benefit pension.