Accounting for pensions

Chris O'Brien and Margaret Woods explain why boards should see the arrival of FRS17 as a sign that they should get more actively involved in fund management.

Lockwood v Department for Work and Pensions 2012

Case law report - online

Transition from community dwelling to retirement village in older adults:cognitive functioning and psychological health outcomes

Supported living and retirement villages are becoming a significant option for older adults with impairments, with independence concerns or for forward planning in older age, but evidence as to psychological benefits for residents is sparse. This study examined the hypothesis that the multi-component advantages of moving into a supported and physically and socially accessible “extra care” independent living environment will impact on psychological and functioning measures. Using an observational longitudinal design, 161 new residents were assessed initially and three months later, in comparison to 33 older adults staying in their original homes. Initial group differences were apparent but some reduced after three months. Residents showed improvement in depression, perceived health, aspects of cognitive function, and reduced functional limitations, while controls showed increased functional limitations (worsening). Ability to recall specific autobiographical memories, known to be related to social-problem solving, depression and functioning in social relationships, predicted change in communication limitations, and cognitive change predicted changes in recreational limitations. Change in anxiety and memory predicted change in depression. Findings suggest that older adults with independent living concerns who move to an independent but supported environment can show significant benefits in psychological outcomes and reduction in perceived impact of health on functional limitations in a short period. Targets for focussed rehabilitation are indicated, but findings also validate development of untargeted general supportive environments.

Discretion in accounting for pensions under IAS 19:using the ‘magic telescope’?

We use a panel data set of UK-listed companies over the period 2005–2009 to analyse the actuarial assumptions used to value pension plan liabilities under IAS 19. The valuation process requires companies to make assumptions about financial and demographic variables, notably discount rate, price inflation, salary inflation and mortality/life expectancy of plan members/beneficiaries. We use regression analysis to analyse the relationships between these key assumptions (except mortality, where disclosures are limited) and company-specific factors such as the pension plan funding position and duration of pension liabilities. We find evidence of selective ‘management’ of the three assumptions investigated, although the nature of this appears to differ from the findings of US authors. We conclude that IAS 19 does not prevent the use of managerial discretion, particularly by companies whose pension plan funding positions are weak, thereby reducing the representational faithfulness of the reported pension figures. We also highlight that the degree of discretion used reflects the extent to which IAS 19 defines how the assumptions are to be determined. We therefore suggest that companies should be encouraged to justify more explicitly their choice of assumptions.