I have never disclosed my defined benefit pension obligations before

If you are required to disclose under FRS 17 and have never disclosed your pension scheme liability, you will fall under one of two categories:

  1. You are required to disclose your liability but you choose not to (and qualify your accounts accordingly);
  2. You participate in a non-segregated multi-employer defined benefit scheme and you are therefore not required to disclose your liability under FRS 17.

Under FRS 102, option 1 will continue to be an option subject to auditor approval.

Under FRS 102, option 2 falls away and you will now be required to record any pension deficit that exists in the annual accounts.

There are two options:

  1. If it is possible to reasonably identify your share of the assets and liabilities in the scheme then you must produce a full FRS 102 disclosure;
  2. If it is not possible to identify your share of the assets and liabilities in the scheme then you must record the Net Present Value of your future deficit reduction contributions in your balance sheet.  An allowance must also be made in the profit and loss account for the interest accruing on the deficit over the year.

The overall impact is that Employers may now have to disclose a significant balance sheet item in their accounts.  Have a look at our case study 3 to see an example of how this is likely to impact in practice.

There are a number of options open to employers to manage the impact of FRS 102:

  • Ensure that the assumptions used to value the liabilities are ‘best estimate’ and reflect your organisation’s future business plans.
  • Consider especially the salary increase assumption, which can often be overstated in ‘standard’ assumptions.  Adopting ‘bespoke’ assumptions can often result in a significant reduction in liabilities;
  • Consider liability management exercises that can reduce the absolute value of the liabilities and therefore reduce variability in the deficit;