LONDON, UK—Hewitt Associates, a global human resources consulting and outsourcing company, has said that the changes to company accounting standards for employee benefits (IAS 19) announced by the International Accounting Standards Board (IASB) in an exposure draft, could cause an increase in reported pension deficits of £25 billion.

FTSE 100 companies currently have about £10bn of unrecognised losses which will have to go on balance sheet under the proposals. However around £9bn of this is concentrated in just a few companies so although it is not an issue for the majority it will be a big issue for those affected.

Martin Lowes, principal consultant at Hewitt Associates, said:

"The proposals in this exposure draft could put European companies – and particularly those in the UK – at a disadvantage compared to companies in the US where the changes are not being proposed for accounting standards.

"UK companies will need to capitalise all future pension scheme expenses onto their balance sheets which could increase the reported deficit for FTSE350 companies by 20% - equivalent to £15 billion. At the same time, the measures will also require the reporting of £10 billion of unrecognised losses in the FTSE100.

"As a result of these proposals, there is an increased potential for an acceleration of the move out of equities as companies will no longer be rewarded with higher profit disclosures for equity investments. Indeed those who continue to hold equities will now need to disclose to investors the additional risks inherent in such a strategy."

In Hewitt's view, the changes mean that companies who have already de-risked their pension fund investments would now have higher expected profits.  In the future, companies who move out of equities will benefit from running lower risk in their pension scheme while maintaining their disclosed profits from the pension fund.

Martin Lowes said:

"A change in investment attitudes could be good news for the security of pension scheme members' benefits but it would push up the already high cost of running a defined benefit scheme for companies – which could further accelerate the move for companies to cease to further accrual and to freeze their pension plans."

About Hewitt Associates 
Hewitt Associates (NYSE: HEW) provides leading organisations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges. Hewitt works with companies to design, implement, communicate, and administer a wide range of human resources, retirement, investment management, health care, compensation, and talent management strategies. With a history of exceptional client service since 1940, Hewitt has offices in more than 33 countries and employs approximately 23,000 associates who are helping make the world a better place to work. For more information, please visitwww.hewitt.com.