Calls for changes to FRS17, the new pension accounting standard, have intensified following the publication of a report revealing that half of the FTSE 100 firms have reported fund shortfalls totalling 4 billion [pounds sterling]. BP and GlaxoSmithKline are the latest companies to reveal big deficits, according to the report, compiled by Watson Wyatt.
The CBI has criticised FRS17 for valuing pension assets in a deceptive way. "It is right that the users of company accounts should have access to transparent information," said its director-general, Digby Jones. "But FRS17 is misleading and introduces a degree of volatility that fails to reflect the realities of pension scheme financing."
The CBI has urged the Accounting Standards Board (ASB) to let companies base the valuation of these assets on the average market value over a period of up to three years. FRS17 currently requires them to base the valuation of pension fund assets on market values at a particular date. This means short-term fluctuations in markets unduly influence asset values, giving investors questionable information and affecting a company's ability to pay dividends, Jones said.
More than half of FTSE 100 firms have now closed their final-salary pension schemes to new entrants, blaming the introduction of FRS17 along with the fall in equity values and increased regulation costs. When Dixons closed its final-salary scheme to all new...