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Desk top survey of issuers’ defined benefit pension scheme assumptions

30/08/2016

IAASA, Ireland’s accounting enforcer, has today published the results of a desk top survey it has undertaken into the principal assumptions used by issuers’ in measuring the assets and liabilities of their defined benefit pension schemes. The survey covered the 2015/16 financial statements of twenty-eight entities listed on the Stock Exchange.

The document is available here.

Background

Financial reporting standards (IAS 19 Employee Benefits) require entities to recognise the net defined benefit liability or asset in the statement of financial position. The measurement of a net defined benefit liability or assets requires the application of an actuarial valuation method, the attribution of benefits to periods of service, and the use of actuarial assumptions.

This survey has focussed on the four actuarial assumptions that issuers most frequently address in pension accounting. The assumptions are:

  1. discount rate;

  1. rate of increase in salary;

  1. rate of increase of pensions in payment; and

  1. inflation.

Key survey results

IAASA’s desk top survey identified that the aggregate total present value of the defined benefit liability for the issuers included in this survey was €23.7bn while the aggregate fair value of the plan assets amounted to €20.7bn. This results in an aggregate net pension liability (shortfall) for the issuers included in this survey of €3bn (2014/15: €4.7bn).

Other findings arising from this survey include:

  1. four issuers with a 31 December 2015 year end have disclosed discount rates for the Eurozone ranging from 2.2% to 2.7%;

  1. three issuers have salary increase assumptions for the Eurozone ranging from 1% to 3.18%;

  1. five issuers with schemes in the Republic of Ireland have assumptions which indicate that there will be no increase to the pensions in payment; and

  1. five issuers with a 31 December 2015 year end have disclosed inflation rate assumptions for the Republic of Ireland ranging from 1.4% to 1.75%

Variation in actuarial assumptions can have a material impact on issuers’ defined benefit obligations and, therefore, warrant continued close assessment by Boards and Audit Committees when preparing financial statements.

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