The Accounting Standards Board (ASB) has proposed changes to the way pension liabilities are calculated. This could have a disastrous effect on reported deficits. The proposals would see:
- pension liabilities discounted at the risk-free rate rather than the AA corporate bond rate that applies at present, thus significantly increasing the size of the reported liabilities
- actual returns on assets substituted for expected returns, thus making liabilities more volatile; and
- the removal of future salary increases from the calculation, reducing liabilities (but not by as much as the lower discount rate would raise them).
View the ASB press release
View a brief guide to the discussion paper (208KB)(pdf)
View thediscussion paper (2.14MB) (pdf)
Concerns are that, if adopted in the proposed form, the ASB’s changes will increase substantially companies’ reported pension liabilities and thus will increase the incentive for those companies that can afford it to get pension liabilities off their books by considering scheme buy-out options.