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Summit to shape direction of pension accounting

11 Mar 2010

Finding a better method of valuing pensions on company balance sheets and ensuring the survival of defined benefit provision will be on the agenda at an Accounting Summit to be held by NAPF in the coming months. The Summit starts a major NAPF review into the standards used for accounting for pensions.

The current standard, set down by the Accounting Standards Board, FRS17, requires companies to value the assets and liabilities of their pension funds in a way that both overstates the likely long-term costs of funding the pensions and results in a high degree of volatility appearing on balance sheets.

The NAPF believes the standards have contributed to the decline in defined benefit provision over the last ten years which has seen the number of schemes in the private sector remaining open to new members fall from 86% to 23%, a reduction of two million people.

Announcing the Summit, at the NAPF’s Investment Conference today, NAPF Chairman Lindsay Tomlinson, said:

“Current accounting standards have been very damaging to defined benefit provision, leading many companies to close their schemes.

Pension funds are long term institutions but today’s accounting standards fail to reflect this.

The NAPF want to find a better approach to pension accounting that balances transparency with a less volatile assessment of assets against

long-term liabilities.”

The Summit will gather together leading experts from the worlds of pensions and accounting to discuss the impact of the standards and

how they can be improved. The NAPF will publish the results of its initiative in advance of a fundamental review of pensions accounting planned by the International Accounting Standards Board towards the end of 2011.

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