UK Pensions Come Up Short Under FRS17

April 30, 2002 ( - Some 64% of the UK's large pension funds are now in deficit, a new survey by Mercer Human Resource Consulting finds.

The study, which examined the accounts of 59 FTSE 250 companies, recently published under the new FRS17 accounting standard, also found that in more than a third of these, the deficits exceed 10% of liabilities.

Of the companies surveyed,

  • 30% now provide new employees with defined contribution schemes, 
  • a further 15% provide a mixture of defined contribution and defined benefit, 
  • while 55% continue to focus on defined benefits.

Results also show that for many companies, pension plan management is a major business activity, in fact, almost a third of the companies have pension funds assets greater than 50% of the company’s net assets, while for one in six the fund is actually larger than the company’s corporate assets.

The survey also found that employers are increasingly looking for ways to reduce the impact of short-term equity volatility on their FRS17 disclosures, including moving away from equities and into bonds.

The FRS17 rule requires companies to match the level of assets in their pension funds to the outstanding liabilities.

One on five funds has less that 60% of their portfolios in equities, compared to a few years ago when few companies allocated less than 75% of their funds to equities, the consulting firm said.

Full compliance with FRS17 will be required in June 2003.