New pensions rule delayed

The new deadline for the accounting rule is 2005

Plans to bring in a controversial accounting rule have been put on hold, raising hopes that UK firms thinking of closing their final salary pension schemes may now reconsider.

The UK standard is the best approach to pensions accounting

Mary Keegan
ASB

Companies including British Airways and BT have said the accounting rule - known as FRS17 - has forced them to change their pension schemes.

The new accounting standard was being phased in gradually, with companies having to adopt it fully for accounting periods ending in June.

But now the deadline for the new system has been delayed until 2005.

Less generous

Businesses do not like the rule because it forces them to report annual changes in the value of their pension funds.

(The decision) should staunch the flow of final salary pension schemes being closed and give us all a breathing space

Roger Lyons, Amicus union

This means that when stock markets are falling, the schemes can show big losses, even though payments will not be due for many years or even decades.

As a result many firms have closed their final salary pension schemes, which guarantee workers a set level of income on retirement depending on length of service and final salary.

In place of such schemes, companies are switching to "money purchase" plans under which workers bear the investment risk and their retirement income is uncertain.

No change in heart

The UK's Accounting Standards Board (ASB) said it was proposing to delay the deadline for the new rule following an announcement from the International Accounting Standards Board (IASB).

It is planning a new international standard for pensions and the ASB said it wanted to avoid companies having to change their accounting practices twice.

ASB chairman Mary Keegan said the decision should not be seen as a change of heart.

"This proposal to defer the mandatory full adoption of FRS17 reflects no weakening of the ASB's view that the UK standard is the best approach to pensions accounting."

'Breathing space'

The decision was welcomed by both industry and unions.

Susan Andersen, director of human resources policy at the Confederation of British Industry (CBI), said it was "good news".

"We still need to rethink the FRS17 standard, which can give the impression of sudden hikes in pension scheme costs," Ms Anderson added.

"Smoothing asset values over a short period would prevent this and give companies with final salary pension schemes some helpful breathing space."

Roger Lyons, general secretary of the union Amicus, said: "This is a serious concession and should relieve pressure on firms, allowing them to re-finance their pension schemes over the long term.

"It should staunch the flow of final salary pension schemes being closed and give us all a breathing space."

But Brendan Barber, deputy general secretary at the TUC, said he did not think it would stop the closure of final salary schemes.

"Employers will simply look for another excuse to make these cuts," Mr Barber said.

Legal action

Workers have become increasingly angry at the closure of final salary schemes, and some are reportedly threatening legal action.

The Daily Telegraph said on Wednesday that the Big Food Group, the food retailer previously known as Iceland, could be sued over its decision to shut its scheme to existing members.

The paper said 904 of the 4,400 workers in the scheme have formed an action group to sue the company for breach of contract.

Contributions gap

Despite recent warnings that people are not contributing enough towards their retirement income, a new survey has found that fewer than one-in-three Britons are paying into a pension scheme.

The study, by the Alliance & Leicester, found that just 30% of people contribute to pension schemes, down from 32% last year.

Women were less likely to have a pension than men, with one-in-four paying into a scheme, while 35% of men did.

It has been estimated that workers in Britain need in total to pay an extra £27bn a year in order to secure an adequate pension on retirement.