In briefHewitt warns on IAS19 reform

Hewitt Associates says the IASB\'s recent proposed reforms to accounting standard IAS19 could wipe out the adoption of risk sharing pension arrangements. In a recent survey of Hewitt clients who have made benefit changes since 2000, around 20 per cent had moved to a risk sharing scheme that could fall foul of these proposals, says Kevin Wesbroom, global risk services lead at the firm.

“The government is seeking views on ways to provide more flexibility to encourage risk sharing schemes, rather than just final salary or defined contribution arrangements which are at polar ends of the risk spectrum. However, the IASB’s latest proposals could wipe out risk sharing arrangements and make employers potentially more inclined to stop defined benefit provision altogether.

“These proposals, if implemented, would mean that “risk sharing” arrangements like career average and cash balance schemes would be valued much more conservatively in the company sponsor’s accounts than final salary schemes, possibly using government bond yields rather than corporate bond yields as a basis. In current market conditions, this might increase liability valuations by more than 30 per cent.”