Administration December 2, 2002

FRS17 Threatens UK Pension Plans

February 12, 2002 (PLANSPONSOR.com) - A new British accounting rule could discourage employers from sponsoring pension plans that link employees' benefits to their final salaries, a survey by the National Association of Pension Funds (NAPF) finds.

Reported by

Camilla Klein

A survey of NAPF members found that more than 75% of companies offering plans that pin the benefit payment to the final salary of the employee, were likely to switch to money purchase plans because of the new accounting regulation, Financial Reporting Standard 17 (FRS17), Dow Jones reports.

Money-purchase plans pay retirees the market value of what they contributed at the time they retired.

FRS17 changes the reporting requirements of public UK companies for their pension and other post-retirement benefits.

The new standard requires pensions to be accounted for using the fair value approach and is in line with the accounting standards under US Generally Accepted Accounting Principles (FAS87) and International Accounting Standards (IAS19).

According to the report, NAPF Chairman Peter Thompson noted, “We have been warning for some time that FRS17 would drive many employers from providing defined benefit pensions, and that is precisely what is now happening.”

Compliance with FRS17 will be reqiured in June 2003.