Financial reporting rules could burden large pension funds

Proposals for new financial reporting rules could impose significant costs on pension funds by treating them like banks and insurers, the UK’s biggest pensions trade body warned today.

In its response to the Accounting Standards Board’s (ASB) consultation on the future of financial reporting, the National Association of Pension Funds (NAPF) raised concerns about the costs that the new disclosure requirements would create for large pension schemes.

The NAPF, which otherwise praised the plans for simplifying and consolidating the UK’s accounting practices, urged the Board to remove these requirements from the proposals.

Under the plans, pension funds would have to disclose in their financial reports unnecessary detail about the financial instruments they use, such as derivatives and hedge funds. This would create major costs for large pension schemes with more complex investment and risk mitigation strategies.

The NAPF argues that pension funds would be subject to an unjustified level of disclosure. Pension funds would have to comply with the same disclosure requirements as banks and insurers, despite the very different purpose for which their financial statements are prepared. They would also have to disclose further actuarial information which is already available, creating an unnecessary duplication.

Darren Philp, NAPF Policy Director, said:

“The rules requiring pension funds to disclose their financial instruments offset an otherwise good set of proposals.

“Pension funds would face tough disclosure requirements starting from the wrong assumption that they are financial institutions like banks and insurers when in fact they are not. And on top of that, they would face further disclosure requirements specific to them, which would raise the bar even higher.

“We support greater transparency, but these new rules will do nothing to help scheme members and their advisers. Instead, they will increase the costs for large pension funds.

“The Accounting Standards Board should remove pension funds from the category of financial institutions and eliminate the additional disclosure requirements. The existing disclosures are perfectly adequate as they are.”

The NAPF is also concerned that the new disclosure requirements would unbalance the structure of the pension funds’ financial reports and confuse scheme members (employees and pensioners) for whom they are intended.

Currently, pension funds report on the basis of the “Pensions Statement of Recommended Practice” (SORP), which specifies the content of their annual reports.

The ASB is proposing three new financial reporting standards that will have the effect of simplifying and consolidating UK Generally Accepted Accounting Practice (UK GAAP). The new rules are set to take effect on 1 January 2015.

 

Notes to editors:

1. The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,200 pension schemes with some 15 million members and assets of around £800 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.

Contacts:

Christian Zarro, Press Officer, NAPF, 020 7601 1718 or 07825 171 446, [email protected]