Defined Benefit  

Companies accused of 'inadequate' pension disclosure

Companies accused of 'inadequate' pension disclosure

FTSE 350 companies are providing inadequate disclosure of their defined benefit pension schemes in the company accounts, pension covenant consultancy Lincoln Pensions has claimed.

In a report released today (31 October), Lincoln argued that the information provided in most company accounts was "inadequate" to assess the level of risk the DB scheme posed to the business.

This, the report argued, meant investors were left to "guess or interpolate" the actual fund commitment a firm had made to its DB scheme from the mandatory IAS19 disclosure, which it described as "limited".

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Lincoln Pensions argued that more thorough disclosure was needed, given that in many cases pension schemes were the "longest-term and most volatile liability on a balance sheet". 

The firm's research revealed that 67 per cent of FTSE 350 companies did not disclose the deficit or surplus position of their DB schemes "relative to the actual funding target" driving pension contributions.

It also revealed 54 per cent did not disclose the length of their recovery plans.

Darren Redmayne, chief executive of Lincoln Pensions, said: "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.

"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."

He said the new "long-term viability statement", which requires more thorough disclosure of long-term risk, provided "the ideal catalyst and justification" more more thorough pension disclosure. 

He claimed that more rigorous disclosure requirements would have highlighted the problems facing the BHS and Tata Steel schemes "much earlier".

Both schemes face large deficits which emerged as the companies fell into financial trouble.