Accounting standard 'exploited to close pensions'

Finance directors at Britain's largest companies are exploiting the controversial new FRS 17 accounting standard as a "scapegoat" to close final salary pension schemes, a leading actuaries firm said yesterday.

Far from fuelling the growing trend for companies to shut off membership of generous defined benefit pension schemes, FRS 17 has revealed a £5bn pension surplus at half of the FTSE 100 companies that have published accounts under the new standard, research from Lane Clark & Peacock has found.

"FRS 17 isn't the bogeyman. A lot of people think FRS 17 makes pensions very expensive to provide. But what has made them expensive is people living longer," Alex Waite, a partner at LCP said. "It is being used as a convenient scapegoat for those wishing to close off the growing cost of pension commitment."

FRS 17, which does not come into force until 2004, requires companies to register pension deficits on their balance sheets, creating the possibility of hefty one-off charges against profits.

A raft of business leaders, including Sir Stanley Kalms, the chairman of Dixons, have attacked the new standard for putting pension schemes under pressure. He described FRS 17 as a "stab in the heart of the final salary scheme" as he closed Dixons' scheme to new members. Marks & Spencer, Abbey National and Iceland have done the same.

LCP warned yesterday of the danger of relying on the "snapshot" that FRS 17 provided at the end of a financial year, arguing that the results distort companies' balance sheets and allow investors to misinterpret information.

"Just because there is a deficit this year it doesn't mean there will be one next year. With FRS 17 companies are subject to what the markets do. This is bad news for finance directors because it gives uncertainty and volatility," Mr Waite said.

LCP's survey of the 47 FTSE 100 companies to have published accounts under FRS 17, found that 25 showed a surplus, including Unilever, BAA and BP Amoco, and 22 a deficit. Of those in the red, two of the largest culprits were HSBC, which reported a £837m deficit and Centrica with a hole of £333m. In percentage terms, the most underfunded companies were Compass at 30 per cent and HSBC at 12 per cent.

LCP also cautioned that the UK could see another major change in pensions accounting before 2005 when Brussels is due to harmonise accounting standards across Europe.