Is this new accounting standard deterring the best strategy
Thanks Rupert
So here is my understanding of the issue, even if I still don't understand the first two paragraphs of the FT article.
FRS 17 is the new accounting standard which deals with pensions. If Boots plc has a surplus in its pension fund, it must
show that suprlus in its accounts, which is good. If it has a deficit, it must show the deficit as a loss which is bad.
As the FT article points out, many companies have pension funds which are much bigger than the sponsoring companies, so an adverse move in the pension fund assets could wipe out the profits of the sponsoring company.
So by switching to bonds, the company can be sure that there will be no surprises in the short term. But in the long term, their pension fund will be more expensive and could slowly wipe overwhelm the sponsoring company.
And as you say, Rupert - most actuaries would regard this as an inappropriate investment strategy for the pension fund.
So Boots didn't switch out of equities because they thougth that equities were due to crash - they switched out of equities to avoid and short term surprises?
Brendan