What About The Pension Deficit Michael?

Michael Izza (CEO of the ICAEW) has just published a brief review of the 2011 ICAEW results, entitled "2011: A Year of Growth for ICAEW".

He says:

"We have just published the ICAEW Annual Review for 2011, and as you will see the headlines are positive. Member and student numbers are up and income has grown, despite a tough economic backdrop in many parts of the world."

Yet for reasons that are unclear he does not say a word about the pension deficit of £40M that completely undermines that finances of the ICAEW, and is the tail that is wagging the dog of the ICAEW's drive for new members via its international "strategy".

How very odd that he doesn't mention it?

ICAEW Results - Pension Deficit Drains ICAEW Lifeblood

In May 2011 I wrote the following about the ICAEW's results:

" the defined benefits pension scheme, which was closed on 30 June 2010, is expected to show a £22.6M deficit as of 31 March 2010 following the completion of an actuarial valuation.

It seems that funding contributions of £6M a year for three years, followed by £3.5M a year, will be made until the deficit is eliminated.

It is reasonable to assume that the long suffering members of the ICAEW will be expected to pay increased subscriptions to cover these funding contributions. "

One year on, and the pension deficit continues to drain the lifeblood of the ICAEW.

In fact the pension deficit (based on a December 2011 desktop review) has worsened to £40.1M:

"at which level a trigger event is recognised on the covenant agreement.  The situation is being monitored to determine whether this represents a temporary event and discussions are continuing with the trustee. This review will not be concluded until after the date of signing of these financial statements. At that date our estimate of scheme funding was 82.5%, at which level we would expect the trigger event to be deemed temporary.

If the red trigger event is not deemed to be temporary and the covenant agreement is enforced, an additional funding contribution of £5.0m to the scheme would be required and the funding plan reviewed as to duration and size of payments; the current covenant agreement would also end. Such a contribution does not have a direct impact on the income statement and no provision has been made within current liabilities owing to the uncertainty of the temporary event."

Be warned, by the sound of it there may be a major increase in subscriptions.

However, much like local councils, it seems that the ICAEW has found a way to boost its finances (other than just by increasing the annual subs); namely by levying fines. The retained surplus after tax for the year was £4.1m (2010: £1.8m), after receipt of £2.4m of one-off fines and recoveries of past costs from the Accountancy and Actuarial Discipline Board (AADB).