Pensions - Articles - Pension schemes – four month liability stability

 But threatens companies P&L reporting

 The UK’s Defined Benefit pension scheme liabilities have witnessed four months of stability according to Xafinity’s Corporate Pensions Scheme model.

 Whilst this is in part good news, the deficit has stuck at in excess of ½ trillion, in effect, corporates holding 68p for every £1 promised, according to FRS17 and IAS19 accounting rules.

 Should this trend continue uncorrected, then corporate sponsors will suffer severe consequences in the profits they can report. Changes under IAS19 rules will lead to a fall in the credit in the P&L for returns on scheme assets, and a large deficit means interest charges will also create significant hits to the P&L – in effect, a double whammy.

 Source: Xafinity Corporate Pensions Scheme model, based on all UK DB pensions and using FRS17 and IAS19 accounting rules

 The marginal improvements in equity markets at the end of May, stable inflation and small falls in corporate yields have helped create a worrying scenario of stagnation, as highlighted by Pensions Minister, Steve Webb, who highlighted the danger of “stand(ing) idly by” as accounting deficits threaten UK corporates.

 Hugh Creasy, Director at Xafinity Corporate Solutions, said: “We are entering a very scary period for corporate pensions which if left uncorrected could have serious long-term consequences. While corporate sponsors should avoid knee-jerk reactions, they should be planning how to deal with the impact of pension scheme deficits; the broader economy and the markets show no sign of rescue in the short to medium term.”