Pension SORP

The Pensions Research Advisory Group (PRAG) has published the latest Statement of Recommended Practice (SORP) for pension schemes.

Actuarial liabilities

The revised SORP follows previous guidance in that actuarial liabilities continue to be excluded from the financial statements of pension schemes. However, as this is fundamental to an understanding of the financial statements this should now be noted at the foot of the Net Assets Statement.

PRAG notes that the regulatory and accounting standard regime is changing and that the UK is now moving towards convergence with international accounting standards.  As a result, it must remain uncertain whether this treatment will continue when the SORP is next revised as the Accounting Standards Board are currently carrying out a major research project which encompasses this aspect of pension scheme financial statements.

Investment valuation

The SORP states that where there is an active market, the bid price is usually the appropriate quoted market price.  Previously, the guidance was to use the mid price.  Pooled investment vehicles should be included at the closing bid prices if both bid and offer prices are published or, if single priced, at the closing single price.

Derivatives

The new SORP contains detailed guidance as to how derivatives should be accounted for.

Deficit funding contributions

These are contributions payable for a limited period or as a single payment, to improve the funding of the scheme, often arising from a scheme funding recovery plan.  The notes to the accounts should explain for how long deficit funding contributions are payable.

Some schemes include employer deficit funding in the contribution rates deducted from salaries or wages.  Where this is the case, the notes to the accounts should explain that employer normal contributions include deficit funding payments and the amount should be quantified and disclosed in the notes.

Income from annuity policies

It is common practice that the income arising from annuity policies held by the trustees of a scheme is paid initially to the trustees in order to fund the pension paid by the scheme to the pensioner(s). In these circumstances, the income arising from the annuity policies should be included in investment income and the pensions paid to the pensioners included in pension payments.  There should be no netting off of these amounts, as was recommended previously.

Transaction costs

Investment transaction costs should continue to be added to purchase costs and netted against sales proceeds, as appropriate. However, the total amount of direct transaction costs on all investment types should be disclosed in the notes tot he accounts. Indirect transaction costs included within spread costs of pooled investment vehicles do not need to be disclosed, however the notes to the accounts should explain the existence of these costs.

Contingent assets

Contingent assets include arrangements put in place with the employer which provide certainty that the employer can make further deficit funding contributions to the scheme in certain circumstances by making the assets available via a secure arrangement. These arrangements may be in a number of forms including letters of credit, guarantees and escrow accounts. Details of these arrangements should be disclosed in the trustees’ report. Contingent assets are not required in the accounts.

Statements by the actuary

The new SORP encourages that a copy of the Summary Funding Statement is attached to the financial statements, or that extracts of the information from this statement are included in the Trustees Report. In addition it recommends that the financial statements should include a copy of the Certificate of the calculation of the technical provisions under Section 225 Pension Act 2004.

The SORP requires that a certificate of the adequacy of the rates of contributions is included as part of the financial statements under Section 227 Pension Act 2004.

Effective date

The recommendations are applicable for all scheme years commencing on or after 6 April 2007 but early adoption is recommended.

For further information in respect of the new SORP, please contact:

Barry Gostling
Tel: 01473 220022
e-mail: barry.gostling@ensors.co.uk

 

« Return to Briefings