Around two-thirds (67%) of companies in the FTSE 350, with defined benefit (DB) pension scheme assets totalling £332bn, do not disclose the deficit or surplus position of their DB schemes relative to the actual funding target which drives company funding contributions.

More than half (54%) of companies do not disclose the length of deficit recovery plans they are committed to in order to clear the funding deficit.

The shortfall in disclosure reporting is a threat to balance sheets, as highlighted in the recent BHS collapse, particularly as DB pension schemes are often the longest-term and most volatile liability on the balance sheet.

As a result, investors typically have to guess or interpolate the actual funding commitment that a business has made to its pension scheme from limited IAS 19 disclosure.

A review of the FTSE 350, conducted by Lincoln Pensions, shows that relatively few make voluntary ‘best practice’ additional disclosures to help explain the pension risks supported by a given business.

Better information would assist stakeholders in monitoring the sponsor covenant standing behind schemes and help prevent more BHS-type situations, where pension deficits become a major liability for companies.

Viability statements

The recent introduction of the longer view viability statement as part of the strategic report is now part of the revised Corporate Governance Code issued by the Financial Reporting Council (FRC). The revised code requires all listed companies to provide information about the long-term viability of the company and to highlight potential risk factors.

The research found that the accounting disclosures of FTSE 350 companies with UK pension obligations do not provide sufficient information to allow stock market investors, as well as other stakeholders to critically review the exposure.

Darren Redmayne, CEO, Lincoln Pensions, said: ‘The fact that a majority of the FTSE 350 neither disclose the size of their technical provisions deficit - the key figure for setting funding contributions - or the length of recovery plans to fund their deficits leaves members and stakeholders in the dark, having to guess the level of commitment a business has made to its pension scheme.

‘In a world where scheme funding and risk dynamics are driven by scheme specific factors, the limited accounting disclosures can give a very false picture to readers. That’s why we feel strongly that there should be greater transparency around DB pension scheme risks.

‘The Pensions Regulator is driving greater integrated risk management by sponsors and schemes and better information is critical to meeting this objective.’

‘Directors of listed companies are already required to make a ‘long-term viability statement’ which, under the new version of the FRC’s UK Corporate Governance Code, requires a robust assessment of longer term risks. We believe that this new requirement provides the ideal catalyst and justification for obligatory additional disclosure in relation to pension obligations.

‘This best practice should be extended to all company disclosures, listed and non-listed. We believe that many of the issues associated with recent high profile cases, such as BHS and Tata Steel, could have been highlighted much earlier through greater transparency in the accounts.’

“As pension deficits grow and the spotlight falls on DB pension scheme risk, it is becoming increasingly untenable for the one-size-fits-all IAS19 disclosure to appropriately reflect the commercial reality of many situations.”

The analysis was conducted on the latest released annual report of every FTSE 350 company with UK pension obligations as at 12 October 2016.