Blog : BOARD TALK
|Posted on November 1, 2016 at 1:30 PM|
Accounting disclosures of FTSE 350 companies with UK pension obligations do not provide sufficient information to allow stock market investors, as well as other stakeholders, to fully appreciate the scale and volatility of the funding position of the defined benefits (DB) schemes within their portfolios, according to research out today.
Analysis done by Lincoln Pensions, the advisory firm, on the latest released annual report of every FTSE 350 company with UK pension obligations as at 12 October 2016, suggests that investors are typically "having to guess or interpolate the actual funding commitment that a business has made to its pension scheme from limited IAS19 disclosure."
It says its review of the FTSE 350 shows that relatively few make voluntary ‘best practice’ additional disclosures which help understand the pensions risks supported by a given business.
Around two-thirds (67%) of companies within the FTSE 350, with DB pension scheme assets totalling circa £332bn, do not disclose the deficit or surplus position of their DB schemes relative to the actual funding target which drives company funding contributions, according to the research. (my emphasis)
More than half (54%) of companies do not disclose the length of deficit recovery plans they are committed to in order to clear the funding deficit, it says.
Darren Redmayne, CEO, Lincoln Pensions
“The fact that a majority of the FTSE 350 neither disclose the size of their technical provisions deficit - the key figure for setting funding contributions - or the length of recovery plans to fund their deficits leaves members and stakeholders in the dark, having to guess the level of commitment a business has made to its pension scheme" said Darren Redmayne, CEO, Lincoln Pensions.
“In a world where scheme funding and risk dynamics are driven by scheme specific factors, the limited accounting disclosures can give a very false picture to readers. That’s why we feel strongly that there should be greater transparency around DB pension scheme risks. The Pensions Regulator is driving greater integrated risk management by sponsors and schemes and better information is critical to meeting this objective" he added.
Directors of listed companies are already required to make a ‘long-term viability statement’ under the new version of the FRC’s UK Corporate Governance Code. This requires a robust assessment of longer term risks.
"We believe that this new requirement provides the ideal catalyst and justification for obligatory additional disclosure in relation to pension obligations" said Mr Redmayne.
"Over time our view is that this best practice should be extended to all company disclosures, listed and non-listed. We believe that many of the issues associated with recent high profile cases, such as BHS and Tata Steel, could have been highlighted much earlier through greater transparency in the accounts” he added.
Transparency, he believes will make it much easier to spot risks as they develop rather than relying on regulation to enforce a mandatory clearance process before companies undertake corporate deals - as covered here in the FT.
The full report is available from Lincoln Pensions.