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Pension freedoms set to cost UK companies £25bn according to Xafinity Punter Southall

Finance Directors need to look at how pension freedoms are impacting accounting costs and the financial position of schemes

Xafinity Punter Southall, the largest pensions consultancy in the UK specialising solely in pensions, investment and administration services has revealed that pension freedoms could cost UK companies £25bn.

The firm’s inaugural annual Accounting for Pensions survey is based on the accounting assumptions of 155 pension schemes as at 31 December 2017 ranging in size from £10m to £5bn.  It identified three areas that will impact accounting costs: pension freedoms, life expectancy and alternative discount rates.  Key findings of the survey include:

  • Accounting assumptions do not reflect the impact of members leaving defined benefit schemes to take advantage of the new pension freedoms
  • These transfers can increase a typical pension scheme’s liabilities
  • Changes to life expectancy may actually reduce pension accounting liabilities
  • Different approaches to setting discount rates mean shareholders need better information to objectively assess pension costs as this can give vastly different results for similar schemes

The results of this survey are important for Finance Directors who will need to take action now by:

  1. Understanding the pension scheme’s membership and set assumptions based on the cost of members transferring out of the pension scheme
  2. Engage with the schemes trustees to understand the impact on members and the pension scheme funding
  3. Make an informed decision on whether or not to reflect new information on the changes to life expectancy

 

Wayne Segers Principal at Xafinity Punter Southall said: “Last month, there was significant new information released on the number of members leaving pension schemes and also changes to life expectancy, which is starting to slow.  Given the material impact both these factors have on the cost of running a pension scheme, we have looked at how this might affect assumptions used in accounting disclosures.”

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.