Pensions accounting in need of an overhaul, say readers

PENSIONS ACCOUNTING is in desperate need of an overhaul, according to Accountancy Age readers.

Of the 50 readers polled, 84% said current regulation is inadequate, while the remaining 16% felt stability is required.

The current regulation was called into question after a failure by WHSmith to recognise a pensions liability in its annual accounts. The high street retailer was forced to restate its 2012 annual accounts – resulting in a £4m profit hit – after a review by the FRC found that it had incorrectly decided against recognising certain pension liabilities in its accounts.

Advisers are now expected to speak to clients to review the way they approach the recognition of certain pensions liabilities in the light of the FRC’s findings.

The main issue arose from WHSmith’s decision not to recognise as a liability in its accounts a schedule of contributions, prepared under section 227 of the Pension Act 2004, between a subsidiary of the company and the company’s pension trustees.

WHSmith did not view the schedule of contributions as a ‘minimum funding requirement’ to be accounted for in accordance with the interpretation of accounting rules.

WHSmith CFO Robert Moorhead said the company was in the “unusual” position of having a surplus on its pension, of £108m under IAS19 – an accounting standard concerning employee benefits – though it had an actuarial deficit of £75m.

“Since the company has had the surplus since 2006, we had taken the view that we would recognise neither surplus nor deficit in accounts,” he said.

He added that, based on the FRC clarification, the liability should be reflected on the balance sheet.

The restated figures, issued or the year ended 31 August 2013, resulted in net assets being cut to £95m from £149m, and profit after tax falling to £80m from £84m.