- KPMG’s 2011 Pensions Accounting Survey reports most companies’ pensions balance sheets improving over 2010, with many benefiting from the switch to CPI
- Half of companies now using CPI as their pensions inflation measure, says KPMG
- Imminent change to IAS 19 set to improve comparability and transparency of pensions reporting, though will dent UK reported profits by around £10 billion
- Current conditions will be an opportunity for some to de-risk, with buy-out pricing at attractive levels
KPMG’s Pensions Accounting Survey 2011 is published today, revealing a more positive picture emerging on pensions for UK companies than has been seen in previous years.
Most UK companies saw pension balance sheets improve over 2010, with strong asset returns more than offsetting slightly tighter real discount rates. Industry estimates suggest that UK private sector pension deficits fell from around £175bn at 31 December 2009 to below £100bn at 31 December 2010.
This improvement was partly driven by improved market conditions but many companies also benefitted from a windfall as a result of the government’s announcement in July 2010 that CPI not RPI should be the default inflation measure. According to the survey, 50 percent of companies are now using CPI as their inflation measure for at least some of their benefit provision.
According to KPMG, a revised IAS 19, due to be published in May 2011 and applicable for financial years ending on or after 31 December 2013, will improve the comparability and transparency of pensions reporting. Among other measures, this new standard is expected to bring an end to corridor accounting options, introduce simpler accounting for plan changes and bring in wider disclosure requirements. The major change though is the replacement of the subjective expected return on assets credit to income with interest on the plan assets at the AA discount rate, expected to dent UK reported profits by around £10 billion.
Mike Smedley, pensions partner at KPMG in the UK, said:
“For once, our survey paints a relatively rosy picture for UK pensions this year. The switch to CPI, stabilising life expectancies and strong asset returns on top of continued deficit contributions have combined to reduce liabilities for many UK companies.
“However with the economic outlook still far from certain, it is unclear how long these benign conditions may continue, making this a good opportunity for some to de-risk. Right now it’s possible to secure a buy-out on relatively favourable terms. In six months’ time, this may not be the case. And the new IAS19, due later this month, might also start to change company’s views – some may reduce investment risk to coincide with the removal of the P&L credit for asset returns.”
KPMG’s Pensions Accounting Survey 2011 is available HERE
For further information please contact:
Margot Cowhig, KPMG Corporate Communications
Tel: 0207 694 4246 Mobile: 07920 274856: firstname.lastname@example.org
KPMG Press Office: 0207 694 8773
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