Issued by the Pension Research Accountants Group (PRAG), the ED of the Statement of Recommended Practice Financial Reports of Pension Schemes (SORP) has been significantly updated to reflect changes in accounting standards, regulations and the pension industry since the previous SORP on pension scheme financial reporting in 2007.
The main changes proposed in the ED are as follows:
- The Trustees’ report to contain commentary on investments and compliance rather than three separate sections;
- The requirement for pension schemes to include annuities at the value of the related obligation;
- Disclosure of determination of value of financial instruments in accordance with the fair value hierarchy;
- Disclosures in relation to investment credit and market risks;
- The reporting of subsidiaries held as part of an investment portfolio at fair value and not consolidated in the financial statements;
- Reducing and simplifying the existing guidance on accounting for DC arrangements.
- Incorporating a “pragmatic approach” to accounting for the first contribution due for auto-enrolled employees. The SORP recommends that opt-out payments made by the scheme are reported as an item of expenditure in the Fund Account.
- Removing “outdated” statutory disclosures required by the Audited Accounts Regulations in relation to types of investment (for example equity, fixed interest public sector, fixed interest other and indexed linked securities analysed between quoted and unquoted and UK and overseas) and disclosure of pooled arrangements between property/other and unit trusts/managed funds. PRAG are liaising with the Department for Work and Pensions over these changes.
A number of these changes relate to new requirements under FRS 102, which has removed the exemption previously available under the Audited Accounts Regulations and 2007 SORP to value annuity policies at nil. However, if a scheme enters the Pension Protection Fund (PPF), annuity income is redirected to the PPF who take over payment of pensions, which may be restricted to PPF limits.
It is expected that the final SORP will be effective for accounting periods beginning on or after 1 January 2015, consistent with the effective date for FRS 102. Early adoption is permitted. For a copy of the ED, visit the PRAG website.