IFRS 18: What will new rules for presenting pensions in financial statements mean for UK businesses?

The new rules apply to annual reporting periods starting on or after 1 January 2027, with possible earlier adoption allowed (subject to endorsement by the relevant jurisdiction).

What does this mean for companies using IAS 19 for pension accounting?

Here’s the key points:

• Presentation Changes: IFRS 18 introduces a more structured Profit and Loss (P&L) statement with separate categories for Operating, Investing, and Financing activities. This affects where pension costs must be shown:
• Service costs, administration expenses, and any special event costs related to pensions (such as settlements) will be included within the Operating category.
• Net interest costs or credits associated with defined benefit pension liabilities will be included in the Financing category.
• Management-Defined Performance Measures (MPMs): Commonly-used MPMs include adjusted operating profit or free cash flow. As the name suggests, MPMs, are defined by the individual company, not by the accounting standards. Given there is scope for similarly named MPMs to differ from company to company, IFRS 18 requires greater transparency for MPMs. The focus on MPMs provides an opportunity to review whether adjustments should be made for defined benefit pensions, for example to exclude expenses resulting from buying-out benefits or awarding discretionary increases from surplus. However, it is important to remember that MPMs are supplemental disclosures and do not replace the core accounting standards set by IAS 19.
• Grouping of Information: IFRS 18 emphasises clear presentation. Companies will need to decide whether specific details related to pensions should be displayed in the main financial statements or disclosed in the accompanying notes.

The key points are applicable to entities reporting under both full IFRS and the FRS 101 reduced disclosure framework.