Asinta’s UK Partner, Xafinity Punter Southall Health and Protection, revealed that pension freedoms could cost UK companies £25bn.
The firm’s inaugural annual Accounting for Pensions survey is based on the accounting assumptions of 155 pension schemes (as of December 31, 2017) who range in size from £10m to £5bn. It identified three areas that will impact accounting costs: pension freedoms, life expectancy, and alternative discount rates.
Key findings of the survey include:
- Accounting assumptions do not reflect the impact of members leaving defined benefit schemes to take advantage of the new pension freedoms.
- These transfers can increase a typical pension scheme’s liabilities.
- Changes to life expectancy may actually reduce pension accounting liabilities.
- Different approaches to setting discount rates mean shareholders need better information to objectively assess pension costs as this can give vastly different results for similar schemes.
The results of this survey are important for finance directors who will need to take action now by:
- Understanding the pension scheme’s membership and set assumptions based on the cost of members transferring out of the pension scheme.
- Engage with the schemes trustees to understand the impact on members and the pension scheme funding.
- Make an informed decision on whether or not to reflect new information on the changes to life expectancy.