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Hans Hoogervorst speaks about pension accounting

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Mar 12, 2015

In a speech given at a conference of the UK National Association of Pension Funds (NAPF), Hans Hoogervorst, chairman of the 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 January 1, 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.

The full transcript of Mr Hooger­vorst's speech is available on the IASB’s Web site.

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