Key issues for UK company pension accounts at the 2023 year-end

As we approach the end of another eventful year, there are a number of issues companies should consider in relation to their pension accounts. We’d recommend considering these issues, how they factor into your assumption setting and engaging with auditors well ahead of the year-end to avoid any surprises or delays.

1. 01

   High inflation and rising corporate bond yields

   Short-term inflation is still much higher than target. Bond yields have also risen steadily over the year increasing discount rates and reducing the value of hedging assets.

   Companies should consider how the current environment is reflected in their discount rate, inflation, salary and pension increase assumptions and the implications for next year’s pension P&L charge.

2. 02

   Reduction in life expectancies

   There remains much uncertainty over the future impact of COVID-19 on short-term and longer-term trends in life expectancies. CMI_2022 mortality projections were released in June 2023, with an adjustable assumption that places some weighting on mortality experience in 2022 by default.

   Companies should consider views on future mortality changes and how this should be reflected in mortality assumptions.

3. 03

   Special events and insurer transactions

   Improvements in funding may enable actions such as buy-ins / buyouts and member option exercises. Discretionary increases may also have been awarded (even if not yet paid).

   Any special events such as these should be considered carefully. Large changes in financial market conditions and asset values may mean “minor” special events could still have material current year P&L impacts.

4. 04

   Disclosures

   Companies should consider assumption sensitivity gaps disclosed in their accounts in light of recent volatile market conditions.

5. 05

   Auditor focus

   With a number of key issues to consider, we expect auditor scrutiny levels to remain high.

   Companies should consider engaging with auditors if there are any changes well ahead of this year-end to avoid any last-minute surprises or sign-off delays.

Key takeaways

1. Consider your current approach and accounting entries in light of these key issues.
2. Engage early with your auditor to understand their views and requirements.