Insight - Compliance is not enough.

(From Financial Director)

Byline: Andrew Sawers.

The good news is that nobody is very much worried about FRS17 anymore.

The bad news is that investment returns have been so dreadful that FDs and pension fund managers are much more concerned about the actual cash costs of final salary pension schemes than about what an accounting standard makes them disclose in the annual report. In short, the issue has moved from being one of how to report a theoretical long-term liability to coping with immediate gaping holes in the staff pension scheme.

This is the key finding from the second survey by consulting actuaries Hazell Carr and Financial Director. One hundred telephone interviews were conducted in March this year with senior managers from companies with up to 1,000 companies. Nearly half the respondents have already closed their final salary pension schemes to new members - and most of those have done so since the beginning of 2001. In fact, 43% have closed over 2002-03.

And there's more to come: almost a fifth of those schemes that are still open are likely to be closed to new members or (less likely) new service in the coming year. Managers even report that 11% of those schemes that are already closed to new members may also soon be closed to new service.

It's hardly surprising. About one third of schemes appear to be below water with a minimum funding requirement (MFR) level at the last valuation of 100% or less. One scheme in nine has an MFR funding level of no more than 50%. The average MFR is just 91%, or an average of GBP 6.7m in cash terms. In last year's survey, the average MFR was 99%. No prizes for guessing that the schemes that closed to new service had an MFR of just 81%. Those that remained open were more comfortably positioned at 102%.