Accounting rule change could wipe £25bn off UK companies

PROPOSALS to change how companies account for surpluses in their pension schemes could knock £25bn off the balance sheets of Britain’s biggest companies, a consultant has claimed.

According to research by Aon Hewitt, FTSE 350 companies will see their balance sheets diminished by billions if they are no longer allowed to include pension surpluses as assets, Professional Pensions reports.

The IASB is currently considering a proposal to bring in this change.

Aon Hewitt principal consultant Simon Robinson, said: “We expect that most companies with schemes which already have a surplus will not be able to recognise it under the new proposal – which would reduce the balance sheets of the FTSE 350 by £8bn.”

It is estimated that about 25% of defined benefit schemes in FTSE 350 companies had an accounting surplus.

The proposals would also affect how companies account for ongoing deficit contributions which are expected to deliver a surplus in future.

“These contributions would now need to be recognised as liabilities on corporate balance sheets which would amount to a further £20bn hit for FTSE 350 companies,” Robinson added.

Director of pensions at PwC Mark Harris cautioned that the figure may be “overstated”, however.

“The IASB proposal concerns only a specific set of circumstances, so the changes would not apply to all pension schemes at all companies,” he told Professional Pensions.

He also pointed out that the proposals have not yet been confirmed and are subject to consultations. “If the impact is as drastic as Aon are saying, that is likely to come up in consultations and the IASB may respond appropriately,” said Harris.

“There are a lot of hurdles to go through before we get to that situation,” he added.

These changes to the international accounting standard IAS19 are not expected to come into effect until January 2017 at the earliest.