Breaking the link — A consideration of the pensions buy-out market in the United Kingdom following recent developments in the accounting and regulatory regime for the measurement and reporting of liabilities of defined benefit pension schemes

Abstract

This paper considers how the pensions buy-out market in the United Kingdom might be affected by the amendment to Financial Reporting Standard 17 (FRS 17) in December 2006, the issue of a Reporting Statement ‘Retirement Benefits — Disclosures’ in January 2007 and the publication by The Pensions Regulator (TPR) of guidance on abandonment in May 2007. The amended version of FRS 17 and the Reporting Statement are responses to a more complicated pensions environment and they might help to bring: (1) wider recognition of the liability measurement issues and the size of the deficit problem; (2) increased confidence in measurement methods and the reporting regime; and (3) greater convergence of actuarial assumptions used by United Kingdom companies following increased disclosure and greater transparency in liability measurement. Greater transparency in reported information about defined benefit (DB) pension schemes may also help to stimulate the markets for buy-outs and other risk management solutions.