UK pension schemes are divided over whether their pension liabilities should
form part of their annual accounts and be subject to audit, according to a new
KPMG survey.
The issue was revealed in a KPMG survey of 250 major pension schemes with assets
ranging from GBP100m (USD154m) to over GBP1bn. KPMG found that half of those questioned
believed liabilities should be audited, while the remaining half took the opposite
view. Currently only scheme investments and scheme transactions are included
in scheme financial statements and subject to an annual audit, with the liabilities
instead dealt with in the actuarial valuation.
The Accounting Standards Board (ASB) is developing proposals to bring UK accounting
into line with International Financial Reporting Standards. KPMG points out
that under international accounting there are three options for dealing with
actuarial liabilities. These are: to include in the financial statements to
create a balance sheet; to include in the financial statements as notes; or
to attach to the financial statements as a separate report.
KPMG believes that the divergence of opinion highlighted by its survey presents
a challenge to accounting standards setters in determining the rules for pensions
accounting. Kevin Clark, associate partner in Pensions Audit at KPMG in the
UK, commented: “This split opinion reflects the range of views in the
marketplace and the results suggest that a flexible approach from the Accounting
Standards Board when it provides guidance on pension scheme accounting next
year would be welcomed.”
The survey threw up a number of potential advantages and disadvantages in incorporating
liabilities into the audited balance sheets of pension schemes. Among the advantages
is the fact that the scheme's accounts will be more useful to users as they
will disclose the overall financial position of the scheme, thus showing how
trustees have managed the overall financial affairs of the scheme as well as
their stewardship of scheme assets. In addition, including liabilities in the
accounts will open up the actuarial valuation to professional independent scrutiny
by an annual audit. Finally, the change may enable trustees and sponsors to
manage their schemes better through more comprehensive financial reporting of
scheme financial affairs.
On the other hand, KPMG points out that scheme accounting liability is likely
to be different from liabilities determined for the purposes of scheme funding
and employer pension reporting and could therefore add to confusion. The new
requirements will also add additional expense to the scheme running costs through
additional accounting and audit requirements, and add additional complexity
to scheme accounts and, given the low take-up of scheme accounts, provide limited
value to members.
Clark concluded: “Unfortunately, there doesn’t seem to be a ‘one
size fits all’ approach here but hopefully the ASB can find a solution
that can accommodate the varying needs of differing pension schemes.”
The ASB is expected to provide guidance on pension scheme accounting in an
exposure draft early this year.
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