The financial implications of second pillar pensions : a listed company case study

Abstract

Purpose: The objectives of this study are to evaluate the accounting treatment required by IAS 19 for post-employment benefits while also to assess the financial implications of a second pillar pension. Particular attention is given to the latest developments of IAS 19 and the effects that the introduction of a Defined Benefit or a Defined Contribution plan could have on the financial statements of one of the listed entities in Malta under a number of different scenarios. Design: A qualitative case study approach was deemed to be the most appropriate methodology for this dissertation whereby employee data was provided by the selected listed entity. Such data was used to compute the pension assets and liabilities as required by IAS 19. Findings: The findings of this dissertation revealed that under all the scenarios presented, in a Defined Benefit scheme, the pension obligation had a material impact on the financial statements of the company while the decrease in profits ranged from €0.4m to €1.7m. As with respect to the Defined Contribution scheme, the decrease in profits ranged from €0.2m to €0.7m while the increase in liabilities amounted to between 1% and 3%. Conclusion: This study concludes that Defined Benefit schemes could prove to be a burden on this listed entity due to the material change in the company’s liabilities and the volatility caused by Fair Value accounting. On the other hand, Defined Contribution schemes can be manageable, although the impact on profits cannot be ignored. Implications: This study therefore implies that caution should prevail in the implementation of occupational pensions in Malta. Predominantly, there should be an understanding of the financial implications on Maltese entities while also establishing a rigorous legal framework.