John Davies, head of business law at the Association of Chartered Certified Accountants (ACCA), argues that it is essential to adopt a long-term perspective in the consideration of future regulation of pension schemes. According to him, there is need for creative thinking about the way pension schemes are organised. The advantage of auto-enrolment (making it compulsory for a worker to become a member of a pension scheme) should, for example, be considered.

What are the suggestions formulated by ACCA in this huge reflexion on pension schemes?

Governments should acknowledge that the encouragement of supplementary pension saving promises to bring long-term benefits for society; they should therefore be prepared to offer tax incentives to pension saving and keep regulatory requirements to the minimum necessary to safeguard accrued benefits. Where an employer offers a workplace pension scheme and supplements the financial contributions of the employee with its own contributions, it is much more likely that the individual employee will join that scheme and start accumulating his or her pension benefits. In the current financial climate, though, many employers are understandably reluctant to invest in such arrangements because it means diverting funds from running their business.

The economic pressures facing those employers who might like to offer workplace schemes but feel that they cannot afford to do so should be acknowledged. The European Union should take the lead in encouraging governments to explore alternative options, which offer the possibility of reducing costs. Such options include hybrid schemes, which incorporate aspects of defined benefit and defined contribution arrangements (and are therefore cheaper to run and fund) and multi-employer schemes, which enable economies of scale to be achieved (there has been a significant transition to such schemes in the Netherlands).

Furthermore, given the known reluctance of many workers to start saving for a supplementary pension, the advantages of auto-enrolment should be considered. Before going down that route, however, states will need to satisfy themselves that whatever schemes they require individuals to join are likely to represent a worthwhile financial investment for the worker.

Do you think that any legislation should be reviewed?

Both in the private sector and the public sector, pension schemes have struggled in recent years to generate the investment returns necessary to fund the benefits that their members are entitled to. No amount of regulation can make pension schemes generate more funds if the financial markets are experiencing significant downturns, as we are still seeing.

Whatever funding targets may be introduced to replace those in the institutions for occupational retirement provision (IORP) directive (2003/41/EC), the regulation of the industry must adopt a long-term perspective in relation to the monitoring of the performance and position of individual schemes. This long-term perspective should be adopted in respect of, in particular, target funding levels and deficit reduction periods.

The green paper raises the intention of the International Accounting Standards Board (IASB) to reform the IAS 19, which would do away with the current provision in the standard, which allows employers to spread changes in pension costs over a future period. What does the ACCA think about this idea?

The proposed reform of IAS 19 would make it compulsory for employers to recognise any gains or losses in their pension costs in their accounts immediately. This means that employers could be faced with having to post significant additional amounts. There will also be changes to how companies record the investment performance of pension scheme investments.

The argument in favour of these changes is that it will provide more clarity and help the cause of comparability between companies. The replacement of the current provision for expected rate of return is admittedly out of date by now, and arguably that technique benefits companies whose schemes chose to invest in a certain way, ie in equities rather than fixed interest investments. On the other hand, removing the provision might conceivably drive schemes the other way, namely towards more conservative investment strategies. And this aspect of unintended consequences is the main danger in these proposals - while the IASB is keen to ensure that they are accounted for in the same way as other assets and liabilities under IFRS, pension schemes do have a special and unique character, most obviously they are long-term investment vehicles, whose liabilities do not fall to be met for many years to come. Pension schemes have a particular interest in seeking long-term investment growth - if they are incentivised to pursue more conservative strategies for accounting purposes, this may not be in the best long-term interests of their beneficiaries.

The green paper launches the debate on portability of pensions. What is the ACCA’s point of view?

The inconsistency of national rules on this issue represents a significant disincentive to social mobility and is thus a serious barrier to the achievement of the single labour market. While the problems are considerable, we would like to see a renewed effort made at EU level to make it easier for individual citizens to take their accumulated rights with them when they go to work for employers in different states.