So we have reached the end of the year – how bad is the accounting position looking for pension schemes?
Well, not as good as last year end, but better than feared only a couple of months ago.
Typical IAS19 funding level over 2016
The chart above, from our interactive tracker Illuminate, shows how the IAS19 funding position for a typical defined benefit pension scheme has played out over the year. Starting the year at 90%, it has never recovered above this point. Whilst higher than the lows seen at the end of August our typical scheme is still only 85% funded at the year end, 5% down on the start of the year, even though the FTSE 100 total return index was up 19% over the year.
A stock market rally in December was offset by long dated corporate bond yields (those which drive the IAS19 discount rate) falling by nearly 0.3%. This has resulted in an increase in liabilities on the accounting basis which has not been matched by asset returns in underfunded schemes.
However all is not lost, as now is still a great time to review how your accounting assumptions are set and what flexibility is available. Take a look at our resources below to see what short and long term action company directors can take to improve your year end position.