Smooth audit
still key objective when it comes to year end pensions accounting, according to LCP poll

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A smooth audit with no surprises topped the list of year-end accounting objectives in a recent LCP webinar poll of over 70 sponsors. 

65% said this was their key objective. 9% said triennial valuation positioning was important, while 17% said optimising the balance sheet was the key objective. 

When it came to reporting the accounting surplus on the balance sheet, 38% preferred to report the surplus, but the amount was less important. 22% were indifferent, while 13% preferred not to disclose a surplus. Only 13% said they had a strong preference to disclose the surplus as a balance sheet asset and that the bigger it was, the better. 

As at the end of September, FTSE 100 balance sheet surplus levels stood at £70 bn, broadly equating to a 120% funding level. Sponsors have previously tended to opt for the de-risking route because they’ve tended to see the scheme as a millstone around their neck. But in an era of high funding levels, there are now more opportunities to extract value, whether that is supporting DC members’ discretionary increases or future accrual to DB members – all at less or no cash cost. 

LCP’s recent report, Seize the Moment, outlined how a strategy that seemed right when set a couple of years ago could be missing out on important new opportunities. 

The report also had four key takeaways for schemes as they approach year-end accounting: 

  • Understand your objectives and how they influence your approach to the assumptions.
  • Consider mortality - not only in the context of corporate accounts but also in wider implications, including funding and de-risking.
  • Get a current estimate of the accounting position to ensure no surprises at the year-end.
  • Engage with auditors to understand their needs and expectations in advance of year-end and manage the process.  

Gordon Watchorn, Head of Corporate Consulting, LCP, commented, “Our poll shows that when it comes to year-end accounting, making sure there are no surprises and everything goes smoothly with the auditor is still a key concern for sponsors. 

“More broadly, unprecedented funding levels mean that there are now a whole variety of options for sponsors. It’s time to embrace innovation, keep things under review and seize opportunities when they arise.” 

You can read more details about how schemes can get their accounting right here.