UK Pensions Industry Seeks Changes To Accounting Standards

by Robin Pilgrim, LawandTax-News, London

03 August 2009

The UK Marathon Group - a club of trustees and senior executives of pension schemes and other organisations with GBP170bn of assets - has called for an industry dialogue to stem the increased and unnecessary threat of Defined Benefit scheme closure or disruption created by accounting standard IAS19.

IAS19 requires assets to be marked to market value at the balance sheet date unless they are being held to maturity, whilst calculating the present value of future liabilities according to a discount rate derived from AA bond yields. According to the Marathon Group, the effect of this regulation is to induce short-termism in pension fund management.

The group's chairman, Roger Emerson, said: "Current accounting practice is unhelpful, potentially damaging and arguably incompatible with the requirement to prepare accounts of a business as a going concern. Prescribing a valuation approach for pension funds in company accounts on a basis more appropriate to termination is becoming self-fulfilling."

The club is calling for accounting rules 'which recognise the nature of pension funds as long-term investors with long-term liabilities.' New rules should result in 'assets being shown at fair long-term values, and liabilities being calculated as the net present value of future benefit commitments and other outgoings, discounted at a prudent long-term rate consistent with the valuation of the assets.'

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