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Accounting Standards: IAS 19 and the Scheme Funding Regime

The scheme funding provisions contained in the Pensions Act 2004 require trustees to prepare a statement of funding principles for ensuring, amongst other things, that the statutory funding objective (SFO) is met. The SFO requires a defined benefit scheme to have “sufficient and appropriate assets to cover its technical provisions” (namely, from the EC Pensions Directive, “the amount required, on an actuarial calculation, to make provision for the scheme’s liabilities”).

In its statement, “How the Pensions Regulator will regulate the funding of defined benefits”, the Regulator explained that, in setting the points which will trigger further investigation of a scheme’s technical provisions (for further information see, Scheme Funding: Basics), it took into account the value placed on pension liabilities by employers in company accounts in accordance with IAS19 or FRS17.  It concluded that the trigger should be set as a range between section 179 of the Pensions Act 2004 (the valuation used to calculate a scheme’s Pension Protection Fund risk-based levy) and FRS17 / IAS19 liability values.  However, The Regulator emphasised that neither of these values should be used as a funding target.

Author: Georgina Jones