Hymans Robertson, the actuarial consultancy, has urged the Accounting Standards Board (ASB) to reconsider changes to its international pension accounting rules.
The consultancy says the changes to IAS19, due in 2008, will deter companies from prudently funding their pension schemes by hitting their balance sheets. Those companies who are slower to tackle their pension problems will find their balance sheet unaffected.
Hymans Robertson has called on the Pensions Regulator to consider how to mitigate the rules and to ensure companies fund UK pension schemes prudently. It also warns company analysts to consider the impact of rule changes to avoid making inaccurate comparisons between different companies.
Patrick Bloomfield, partner and actuary at Hymans Robertson, says: “If a company chooses to fund its pension scheme to a higher level than required under IAS19, the tougher funding terms effectively override IAS19. This could have a major impact on the balance sheet and the resulting bottom line.
"This boils down to accounting complexities turning a healthy pension asset into a debt, despite no change in the pension scheme whatsoever.
“Finance directors will be penalised for trying to save more than IAS19 requires. Consequences of these changes could include pushing up the cost of company debt or restricting shareholder dividends.
“It is difficult to believe this can be thought of as sound financial stewardship on behalf of shareholders, and should be put right before real damage is done and final salary schemes are priced out of existence.”
Bloomfield highlights Kohlberg Kravis Roberts (KKR) as a potential casualty of the rules. KKR bought Alliance Boots for £12bn in May and plans to pay £418m over the next ten years to plug the Alliance Boots pension scheme deficit. However, under the new rules, Bloomfield says the private equity house could take a hit on its balance sheet of up to the capitalised value of the £418m contribution commitment.
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