Trustees must see accounting limitations – Boyle

Trustees of final salary pension schemes and the directors of sponsoring companies must recognise the limitations of accounting and actuarial information related to pensions, says Paul Boyle, chief executive of the Financial Reporting Council.

Speaking at the Association of Corporate Treasurers Pensions Conference, Boyle said discounting future cash-flows could create a potentially misleading impression.

He noted that a draft new Actuarial Standard issued for consultation by the Board for Actuarial Standards would require actuaries to give greater prominence to the timing and nature of cash-flows on which their reports are based and to the likely results of similar future reports.

Boyle said: “The pensions accounting challenge is how to compare a long-term flow of benefits with a current stock of assets. We can use discounting to convert the long-term flow into a present value, which dramatically shrinks the reported value of liabilities.

“However, discounting is a practical technique with a theoretical conceptual underpinning. The theory is only valid in the real world if two critical assumptions hold good. These theoretical assumptions are, of course, rebuttable in the real world.”