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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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