Services to the Employer

1. Pension Consulting

Pensions, especially defined benefit pension schemes, have received an unprecedented level of press coverage of late. Most of this has concentrated on the negative aspects, focusing on large pension scheme deficits, schemes closing and restructuring to the extreme of members losing their pension on company insolvency. Such press attention will undoubtedly encourage members to take a greater interest in their own scheme.

In addition, new legislation came into force under the Pensions Act 2004. In brief this will require, for most schemes, stronger funding base (leading to higher contributions) and shorter periods over which deficits are spread.

Controlling costs, complying with new legislation and managing members’ expectations are the main challenges facing employers with defined benefit pension schemes at present. As these aims are often conflicting, it is crucial for employers to obtain actuarial advice on these points at an early stage.

The Scheme Actuary is bound by a duty of care to the trustees; hence there is a risk of a conflict of interest if the Scheme Actuary is required to advise both the trustees and employer. This is because the employer and trustees will often have very different aims in this regard.

These conflicts can be managed or alternatively the employer may choose to appoint a separate actuary to avoid these conflicts. At cprm we have a vast experience of managing these conflicts. We have a number of cases where we successfully advise both parties, using 2 different actuaries if required. In addition, we have many schemes for which we provide consultancy services to the employer only.

Which solution is best, is very dependant on the consultancy services required. At cprm we aim to provide flexible services and are happy to provide assistance as part of a one off consultancy exercise or to provide a more ongoing advice approach.

2. Accounting Services: FRS17, IAS19 & FAS87

For companies with a defined benefit pension scheme, there is a requirement (subject to limited exceptions) for the directors to include figures in the company’s accounts relating to the financial position of their scheme.

Although pension scheme accounting is in the process of transition, it is likely that these costs will need to be calculated in accordance with one or more of the following standards:

One point that is not often understood is that these figures need not be sought from the appointed Scheme Actuary, but that the requirement is simply that they are completed by a suitably qualified actuary.

How can cprm help?

At cprm, we have a specialist team routinely providing disclosures to companies under all of the above standards. We strive to provide a high quality solution with quick turnarounds at a very competitive price.

The assumptions used to assess the pension scheme liabilities, all though prescribed to some extent, are the responsibility of the directors of the company. The actual assumptions used will affect the surplus/deficit disclosed in the accounts, and hence impact on the company’s profitability. It is therefore key that company directors fully understand the impact of the assumptions used.

Our disclosure aims to support directors in this regard, providing guidance on our view of realistic assumptions as well as a discussion on the financial impact of changes to these assumptions.

3. Share Based Payments: IFRS2 & FRS20

With effect from 1 January 2005 (1 January 2006 for unlisted companies) new rules apply regarding the disclosure of the cost in respect of all share based payments in a company’s financial statements. T he principles and requirements are documented in the accounting standard IFRS2, which are now embodied within FRS20 in the UK.

The new requirement states that the fair value of these awards needs to be recognised in a company’s accounts over the period during which an award vests. It also argues that traditional approaches used to assess the fair value are no longer appropriate, recommending instead that the statistical binomial model is used.

As the standard encompasses all share based payments, for example Share Option Schemes, Save As You Earn Schemes and Long Term incentive plans, the new standard will impact on companies profits going forward.

How can cprm help?

Statistical modeling is core to the work of any actuary, putting cprm in an ideal position to support a company’s accountants and auditor in meeting the requirements of the new rules.

At cprm we have developed a flexible software package to enable us to assess the fair value of awards, in accordance with IFRS2/FRS20. Using this we have already built up significant experience of producing the relevant disclosures. These disclosures have since been independently audited for a number of our clients.

We are therefore at the forefront of the development of processes and understanding the implications of the new standard enabling us to deliver a quick, accurate and tailored service to our clients.

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