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November 14, 2010

Pension disclosures can deter investors says report

Lack of clarity in pension liability reporting
has an ‘unnecessarily negative’ impact on investor perception of a
business, according to a study by PwC.

The study says companies are focusing too
heavily on benefit scheme liabilities, regardless of whether there
is a pension deficit, causing unnecessary concern amongst investors
that could potentially result in lower share prices and credit
ratings.

“Investors may shy away from organisations
where they perceive the pension risks to be unacceptable,” says PwC
pensions partner Brian Peters.

“While many companies are taking action to
reduce the risk that pension liabilities pose to the business, they
are not always getting credit for this by failing to clearly
communicate the benefits.  Perversely risk reduction exercises
can sometimes have a negative impact on investors’ perceptions, by
drawing attention to the significance of pension liabilities,”
Peters said.

More than half of the survey participants
believe the information they disclose leads to negative attitudes
and 25 percent recognise the impact of defined benefit schemes on
company cash flows is the biggest cause for concern amongst
investors.

The study was comprised of interviews with
leading UK financial analysts and surveyed finance directors in 108
major companies, including 17 of the FTSE 100 and 28 with more than
10, 000 employees.

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