UK firms hit by new global accounting rules

PROPOSED changes to global pension accounting rules will make pension costs more volatile at UK firms, exacerbating the impact that pension deficits have on companies experts warned.

The International Accounting Standard Board yesterday announced changes to the way pension deficits and surpluses are accounted for, which accountants KPMG forecast could wipe as much as £10bn a year from the profits of UK businesses.

Among the changes, the board proposes to ban the use of the “corridor” accounting method, which allows gains and losses made by pension funds to be recognised over a certain number of years rather than immediately, effective from 2013.

The majority of UK companies shun the corridor method, but large and high profile schemes, such as British Airways, are known to use this practice, said Sarah Abram, a consultant and actuary at Aon Consulting.

British Airways’ 2008/2009 annual accounts showed the largest of BA’s two defined benefit pension fund, New Airways Pension Scheme, left “actuarial” losses of £1.19bn unrecognised.