IRELAND’S biggest public companies will report deficits in their defined-benefit pension schemes of €1.99 billion when a new accounting standard takes effect on January 1, writes Ciaran Hancock.
New research from Merrion Stockbrokers shows that each of the 30 quoted firms it surveyed will show a deficit in their pension scheme after IAS 19 is introduced. The new standard is aimed at tightening up the way pension assets and liabilities are recorded in a company’s accounts.
The deficits range from a low of €800,000 for IFG, the financial services group, to €502m at AIB, the country’s biggest public limited company. The average deficit is €66.4m.
A similar study in October 2002 showed that the aggregate surplus was €1.48 billion.
Under the new rules, which are balance-sheet driven approaches to pension accounting, there is much less flexibility in actuarial valuation and amortisation of actuarial gains and losses.
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As the deficits can be set against reserves, Merrion said the new standard would only have a significance for a handful of firms, including Eircom, INM, Viridian, Glanbia, Waterford Wedgwood and Qualceram. Eircom, for example, faces an additional pension cost of €38m in its results for the year to the end of March 2006.
The rise in pension costs will also affect earnings for a number of public companies. Merrion estimates that a rise in pension costs could reduce the earnings of both Bank of Ireland (in 2006) and Irish Life & Permanent (in 2005) by 3% to 4%, and by 5% for Irish Continental Group next year.