Rule change will plunge pension funds into the red

Rule change will plunge pension funds into the red

Figures showing a big surplus in Britain's largest occupational retirement schemes are misleading and will give staff false hope that employers will retain final-salary plans beyond the next few years, according to a firm of pension consultants.

Proposed changes to accounting rules and increases in life expectancy would transform the current surplus in excess of £20bn registered by leading companies into a funding shortfall of more than £120bn, said Redington Partners.

The consultants' warning follows announcements from the UK pensions regulator and Accounting Standards Board that rules covering the calculation of pension deficits are set to be tightened.

A five-year increase in the expected lifespan of men when they reach 65 is also due to be imposed by the pensions regulator after it said last month that employers were underestimating male longevity.

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Last year, a steady trend of pension scheme closures ground to a halt as booming stockmarkets led to funds reporting financial surpluses. However, the return of huge funding shortfalls under the new rules is expected to bring more closures.

Redington said annual accounts showing FTSE 100 firms have a surplus of £21bn would turn into a deficit of £124bn if accounting rules and new regulations due next year were the basis of assessment.

City analysts are likely to base their judgments of pension funds and likely impact on corporate profits on the proposed new standards, increasing the pressure on boards. Redington spokesman Robert Gardner said surpluses would be wiped out if the proposals were implemented.

"Company creditors, shareholders and employees should be asking for full disclosure of what the proposed changes would mean to assess the risks the company and pension scheme are running," he said.

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