Proposed changes to the way pension scheme costs are accounted for on
company balance sheets could drive a wedge between HR departments and finance
directors within the same company.
The planned pension accounting standard, known as Fred 20, is being brought
in by the Accounting Standards Board (ASB) in an effort to improve the
disclosure of the costs involved with running a pension scheme.
But experts have warned that it could put traditional final salary schemes
under threat and as a result deprive HR departments of a valuable employee
Fred 20 will require companies to present a much clearer picture of the cost
of their pension scheme in their accounts, but because the cost of providing
final salary pensions is dependent on the performance of investments this cost
will be volatile. And consultants warn that this volatility will not be
attractive to shareholders, and may even make finance directors look again at
their benefits package.
Brian Peters, pensions specialist at PricewaterhouseCoopers, said,
"There could well be more tension between the needs of finance directors
and HR directors but in reality they are on the same side."
He said that companies may decide that it would be less troublesome to
provide a money purchase pension scheme where the contribution paid in by the
employer remains constant. "FRED 20 brings to the attention the importance
that you have the right benefit structure in place."
He added that in many new businesses, such as Internet start-ups, other
employee benefits like share schemes were more important. "Final salary
pensions are not even on the map."
The new ASB standard is expected to come into force in 2001.
By Tom Powdrill