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A £50bn+ black hole
- companies still left in the dark over possible changes to accounting rules

Jonathan Griffith

In this blog, Jonathan Griffith sets out the latest position on possible changes to IFRIC14 accounting rules as companies head into the busy year end.  It also sets out the current challenges this uncertainty brings to pension scheme sponsors.

Pensions accounting rules can play an important part in the financial well-being of a company.  Small changes to these rules can have a huge impact on figures, with knock-on effects to dividends, budgets, capital and credit ratings.

For some years now, pension scheme sponsors have been living with uncertainty as proposed changes to the IFRIC14 accounting rules have been debated, amended, re-written and - in September last year – “paused”. These changes have the potential to force companies to recognise large additional liabilities on their corporate balance sheet. 

Our Accounting for Pensions Report released in May this year estimated that these changes could impact FTSE100 companies alone to the tune of £50bn. Without doubt, these changes should be a key Board level concern for a large number of pension scheme sponsors.

The Accounting Standards Board had a meeting earlier this year to once again discuss IFRIC14 and once again there is no clear direction on where we may end up. However, whilst it may appear there is no news on one front, the wider pensions landscape in the UK is changing quickly on another.  Most notably, we have had the government’s recent White Paper and the Pensions Regulator’s Annual Funding Statement which point towards increasing demands on sponsors.  As a result, pension scheme sponsors could be agreeing to (potentially large) deficit contributions or big changes to their funding strategies without knowing the full long term accounting and wider financial implications of doing so.

So, what can companies do now?

  1. Consider IFRIC14 as part of all future pension strategy and funding negotiations with trustees and ensure all affected parties understand the issues and potential impact of IFRIC14
  2. Identify opportunities and solutions to remove the potential problem. This could include non-cash funding, liability management or pension scheme rule amendments.

Where do we go from here? The IFRIC14 saga continues for now and we await further developments from the Accounting Standards Board. I just hope that there will soon be a light to illuminate and provide some clarity and that companies aren’t left in the dark for too much longer. 

For further guidance on IFRIC 14 or any other pensions accounting issues please get in touch with your LCP adviser or email enquiries@lcp.uk.com

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To watch our recent webinar, 'Pensions accounting during challenging times for companies' which also covers practical solutions following the outcome of the Lloyds Bank GMP inequalities case last week.