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Alistair Russell-Smith, Partner at Hymans Robertson responds to the recent changes confirmed by the IASB that from 1 Jan 2019, the pensions interest cost will need to be re-struck based on the surplus or deficit at the date of any curtailment or settlement, rather than remaining based on the balance sheet at the previous year end. |
“This move will lead to more volatile pension costs through P&L for those companies who have a curtailment, such as a benefit change or closing to future accrual, or a settlement event such as a bulk transfer. Just this week the FTSE 350 deficit has increased from £85bn to £95bn over a matter of days due to the market falling. This clearly shows how, with these new regulations, market movements between year-end and the date of curtailment or settlement could materially change the interest cost for a company. A company with a 31 Dec year end that has a curtailment or settlement event now would see a 10%+ increase in their interest cost for the rest of the year under this change. Taking a lower-risk-for-longer approach to funding the pension scheme would stabilise the balance sheet and reduce the magnitude of this accounting volatility.
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