Title: Accounting for risky liabilities: evidence from UK pension plans

Authors: Chris O'Brien

Addresses: Centre for Risk and Insurance Studies, Nottingham University Business School, Jubilee Campus, Wollaton Road, Nottingham, NG8 1BB, UK

Abstract: The objective of this paper is to assess how pension providers deal with uncertainty about longevity when assessing their liabilities and how they report the risks involved. It examines the reporting of UK pension arrangements and finds that there are differences between the reporting of the state scheme, life insurers| pension arrangements and occupational pension schemes. In particular, occupational schemes have poor disclosure of the assumptions they make when assessing liabilities, with underestimates of likely future changes in mortality. The paper suggests improved disclosure together with the design of stress tests that illustrate the range of uncertainty around a figure for risky pension liabilities, helping stakeholders understand the limitations of what are estimates in the financial statements.

Keywords: mortality; pension accounting; risk disclosures; risk measurement; stress tests; valuation of liabilities; liability assessment; occupational pensions; UK pension arrangements; United Kingdom; state pensions; life insurance; financial statements.

DOI: 10.1504/IJAAPE.2007.016282

International Journal of Accounting, Auditing and Performance Evaluation, 2007 Vol.4 No.3, pp.286 - 304

Published online: 15 Dec 2007 *

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