OECD report highlights likely impacts of IAS 19 amendments
The Organisation for Economic Co-operation and Development (OECD) has released the 2011 edition of its Pension Markets in Focus publication.
Whilst the publication is primarily focused on pension fund performance in various economies, the report also highlights the likely impacts of the recent changes to IAS 19 Employee Benefits:
"While bringing further transparency, the adoption of the new rules within IAS 19 over the coming years which eliminate the smoothing option will increase volatility in sponsoring companies' financial statements. As a result, there will be added pressure to reduce risk in pension funds' asset holding in order to mitigate volatility and to keep funding ratios more stable than in the past. Pension funds may also transfer risk to financial markets via insurance or by greater use of derivatives for hedging purposes. The trend away from 'pure' defined-benefit plans, 'pure' (final-salary) DB schemes, which guarantee a certain replacement rate and specify pension benefits according to the employee's final pay, length of service and other factors, towards defined contribution arrangements is also likely to intensify."
Click for OECD press release (link to OECD website).