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Hans Hoogervorst speaks about pension accounting

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12 Mar 2015

In a speech given at a conference of the UK National Association of Pension Funds (NAPF), Hans Hoogervorst, Chairman of the International Accounting Standards Board (IASB), said realistic numbers about pension liabilities might not make pretty reading but they will lead to informed investment decisions.

In his speech, Mr Hoogervorst went into more detail on three aspects of pension accounting. He first visited the question of whether the IASB relies too much on fair value measurement in its standards and whether this would lead to too much market volatility, which would not serve the long-term perspective of long-term investors. Mr Hoogervorst admitted that "short-termism is rife across the financial markets" but also added that "markets can get things very wrong". He encouraged long-term investors not to be deterred by short-term market fluctuations and investment fads but to use fair values as a means to evaluate continuously how changes in the market may affect the ability to achieve the goals of a long-term investment strategy.

In the same vein, Mr Hoogervorst then turned to recent amendments of IAS 19 Employee Benefits. With reissuing IAS 19 in 2011, the IASB removed the so-called 'corridor method' of deferring the recognition of actuarial gains and losses effective 1 January 2013. Mr Hoogervorst stressed that as a result, the balance sheet pension asset or liability now represented the actual funding position. He claimed that investors generally saw this as an improvement.

Lastly, Mr Hoogervorst commented on the fact that pension schemes were currently being transformed in a very rapid fashion and hybrid pension schemes were on the rise. While these schemes might be more affordable to companies, they make the accounting for them more difficult. The binary approach of IAS 19 (defined benefit vs defined contribution) was difficult to uphold vis-à-vis "this new, infinitely variable pension landscape" Mr Hoogervorst said. He therefore pointed at the IASB's research project on pension accounting that aims at developing an approach to pension accounting that works for all types of schemes.

Please click to download the full text of Mr Hoogervorst's speech from the IASB website.

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