DB pension scheme corporate disclosures continue to be inadequate
Our study ‘Give us a clue 2’, shows that DB pension scheme corporate disclosures in FTSE 350 companies, continue to be inadequate.
We carried out a similar study in 2016. Since then there have been significant improvements but there are areas of concern.
Key findings of our study:
- one fifth of companies with a DB scheme still do not disclose their funding deficit or surplus position
- over a quarter still do not disclose the length of their of recovery plan
- a fifth still do not disclose the actual amount of deficit repair contributions which they are committed to paying into their schemes.
At present, IAS 19 falls short of providing enough clarity around scheme funding requirements and risk. Action is required to enable investors and other stakeholders to make more informed judgements on the future of DB pension schemes.
We call for the following disclosures to be made:
1. The Technical Provisions (TP) funding position and details of the associated recovery plan durations and contributions agreed. This will show the actual cash funding commitments to the scheme as well as point towards those who need longer to pay.
2. A standard basis for disclosure of pension scheme volatility. Whilst VaR has many detractors, we believe it can be useful if modelled correctly and understood appropriately by its users, to understand the inherent risks of both the assets and the liabilities.
3. A more prudent and comparable funding target (e.g. self-sufficiency, risk free or solvency) to enable comparisons between companies and provide a clearer sense of longer term funding targets as well as revealing the full reliance being placed upon the employer covenant by the DB scheme.
“Defined benefit pension schemes are often one of, if not, the largest obligations for a corporate sponsor. Whilst there have been significant improvements made in basic corporate disclosures over the past 18 months, we believe that a continued push is absolutely necessary. As anyone experienced in financial refinancing and restructuring will tell you, denial is the biggest obstacle to an effective and efficient solution for all stakeholders. Full disclosure of significant pension risks is essential. Without full disclosure, how can financial statements ever be true and fair?”
Richard Farr, MD, Lincoln Pensions
Read the full report: Give us a clue 2