This note is for those who will be involved in preparing and auditing pension disclosure under Accounting Standards FRS102 (UK non-listed), IAS19 (EU listed) and ASC715 (US listed) as at 31 March 2021.
We look at the current topical issues as well as the considerations for company directors when setting assumptions, and for auditors in determining whether the assumptions are appropriate.
Here are some of the key areas covered in this update.
- Since 31 March 2020 most schemes have likely seen a deterioration in their IAS19 funding level, although a significant increase in bond yields during February 2021 has limited the damage to balance sheets compared to the expectations in our previous note.
- Despite the increase in corporate bond yields in the first quarter of 2021, yields remain well below March 2020 levels, which will have led to an increase in accounting liabilities under IAS19.
- The CMI has estimated that there have been approximately 110,000 more deaths in the UK than would have been expected since the start of the pandemic. However, whilst this is an unprecedented number in recent times, it is unlikely to mean a significant reduction in pension scheme liabilities.
- Experience analyses and models for future improvements will need to consider whether the experience in 2020 and early 2021 is a one-off, whether the further waves (if they occur) will lead to a material number of excess deaths during the remainder of 2021 and if the pandemic will influence future mortality in other ways.
- The IASB has published a consultation proposing major changes to the disclosure requirements under IAS19. The changes would see a move from prescriptive disclosure requirements to a set of disclosure objectives. If the changes go ahead, companies will need to review their disclosure notes and will need to include more information about how the pension scheme will affect company cashflows in future. No timeline has been given for implementation, although the consultation closes in October 2021 and feedback from the IASB is then expected in the first half of 2022.
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