Retirement benefits - FRS 17

FRS 17 - Retirement Benefits (Disclosure requirements in force in stages from 22 June 2001; full implementation required in financial statements for periods ended after 22 June 2003)

This Standard takes a fresh approach to the very complex issue of accounting for defined benefit pension schemes in order to bring the UK in to line with international practice and to eliminate some of the subjectivity inherent in its predecessor, SSAP 24.

In essence FRS 17 requires that:

the assets of a scheme are measured at current fair (market) values
the actuarially estimated liabilities of a scheme are discounted to their net present value
the difference between these two figures is the surplus or deficit of the scheme from the perspective of the employer
to the extent that this surplus (or deficit) is an asset (or liability) it must be included in the balance sheet, as a new and separate item.
changes in this net asset (or liability) are analysed each year into the following components:

the expected cost of benefit improvements arising from the employees' current year's service
the increase in the net present value of the brought forward pension entitlements
the previously expected investment returns for the year
differences between the actual and expected levels of the above amounts (if any)
the costs of improvements in benefit arrangements granted in the year (if any)
gains or losses arising from closures and terminations of business units or reductions in the scheme benefits (if any)

the surplus or deficit, and the balance sheet and profit and loss account figures are reconciled

The lengthy implementation period allows employers to adopt it after their next actuarial valuation. Though still highly technical, FRS 17 is a substantial conceptual improvement on SSAP 24, and will ensure that a company's accounts better reflect any final salary pension schemes still in operation. Companies operating money purchase schemes, or group personal pension plans, are unaffected.

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