FINANCE NEWS: Pension schemes under review

MATHEW LITTLE

The Charity Commission has issued "pragmatic

draft guidance on how the charity sector can implement the new pension accounting disclosure requirement FRS17.

FRS17 requires charities which run defined benefit pension schemes, such as final salary schemes, to show the surplus or deficit of the pension scheme on their balance sheet.

Policy accountant Ray Jones said: "FRS17 will only impact on a minority of charities but those affected will need to deal with a radically new approach to how they account for their pension scheme arrangements."

With many charity pension schemes in deficit after a period of poor stock market returns, FRS17 has been one factor in the procession of charities restricting or closing final salary schemes. Charity sector financial advisers the Millfield Partnership said one major charity has a £3 million deficit in its final salary pension scheme.

The Commission guidance, which is being sent out for consultation until September, advises the sector to adopt pragmatic solutions when allocating pension costs across the categories of the Statement of Financial Activities (SOFA), such as support costs, management and administration. Charities should adopt the ratios already in place for salary costs or pension contributions.

The guidance says that surpluses or deficits of most pension funds should be allocated as assets or liabilities within the unrestricted funds of a charity's accounts. But, in circumstances where workers are employed to work on particular restricted fund projects, they should be registered as restricted.

The Commission also stresses that trustees and senior managers will have to explain to funders and stakeholders, the financial impact of FRS17.

This may not be easy, according to Jones.

"A charity may disclose a large pension asset but this will not mean that additional funds are immediately available to spend - the cash flow impact may be spread over a number of years as reduced contributions.

Similarly, a large liability should not automatically be interpreted as giving rise to solvency problems and a need to cut back on activity,

said Jones.

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