Time to modernise pension accounting
September 06, 2018
Large multinational companies typically operate employee benefit plans according to local custom and practice for their workforce around the world. PwC has carried out research in to how companies collect and process their pension information around the world for financial reporting purposes under IFRS or US GAAP. Our conclusions are that the processes used to collect data and the technology used to consolidate the information are in urgent need of modernisation and actually act as a blocker to companies accessing vital risk management information.
Our research shows that there is no “one size fits all” approach to collecting financial information, with around 20% of companies doing it themselves with the remainder (around 80%) outsourcing parts or all to a third party “global actuary”. Best in class would be to use smart data collection tools, such as PwC’s Client Connect, that enables customised data control access so that those uploading data only have access to what they need to see. Only the “super users” at the centre can see all the information collated. Automated chasers are issued to those who have missed the deadlines, doing the project management so companies don’t have to.
Companies' year-end processes can differ significantly in complexity with, for example, our research showing that around half carrying out the valuation process once only, around 30% performing this in a two-step process (i.e. including preliminary calculations at an earlier date) and the remainder (around 20%) using a mixture of these approaches depending on the size of the schemes.
Our research also shows there are a wide range of different consolidation tools, ranging from black box software to using spreadsheets. Few allow companies the luxury of analytics to test, for example, the sensitivity of the disclosures to different assumption or to do projections under different financial scenarios. This absence of flexibility has turned the whole financial reporting process in to a compliance exercise, in effect limiting the opportunity for businesses to use the vast data collected for other purposes, such as designing risk management responses to pension and forecasting cash demands. This is a shame as it is precisely the type of action both boardrooms and investors are demanding of companies who have to live with material pension risk.
Of course all is not lost. There are technologies out there that are moving in this direction and Skyval is a great example of this. Technology should allow companies to have access to all the data needed to perform a wide variety of analytics including benchmarking, sensitivity analysis, scenario projections, and ongoing monitoring of the pension deficit. Whether companies will take the brave step into this technological future is a question that remains, as yet, unanswered.
For more information please contact Brian Peters on [email protected] or 07803668075.