ICAS ICAS logo

Quicklinks

  1. About Us

    Find out about who we are and what we do here at ICAS.

  2. Find a CA

    Search our directory of individual CAs and Member organisations by name, location and professional criteria.

  3. CA Magazine

    View the latest issues of the dedicated magazine for ICAS Chartered Accountants.

  4. Contact Us

    Get in touch with ICAS by phone, email or post, with dedicated contacts for Members, Students and firms.

Login
  • Annual renewal
  • About us
  • Contact us
  • Find a CA
  1. About us
    1. Governance
  2. Members
    1. Become a member
    2. Newly qualified
    3. Manage my membership
    4. Benefits of membership
    5. Careers support
    6. Mentoring
    7. CA Wellbeing
    8. More for Members
    9. Area networks
    10. International communities
    11. Get involved
    12. Top Young CAs
    13. Career breaks
    14. ICAS podcast
    15. Newly admitted members 2022
    16. Newly admitted members 2023
  3. CA Students
    1. Student information
    2. Student resources
    3. Learning requirements
    4. Learning updates
    5. Learning blog
    6. Totum Pro | Student discount card
    7. CA Student wellbeing
  4. Become a CA
    1. How to become a CA
    2. Routes to becoming a CA
    3. CA Stories
    4. Find a training agreement
    5. Why become a CA
    6. Qualification information
    7. University exemptions
  5. Employers
    1. Become an Authorised Training Office
    2. Resources for Authorised Training Offices
    3. Professional entry
    4. Apprenticeships
  6. Find a CA
  7. ICAS events
    1. CA Summit
  8. CA magazine
  9. Insight
    1. Finance + Trust
    2. Finance + Technology
    3. Finance + EDI
    4. Finance + Mental Fitness
    5. Finance + Leadership
    6. Finance + Sustainability
  10. Professional resources
    1. Anti-money laundering
    2. Audit and assurance
    3. Brexit
    4. Charities
    5. Coronavirus
    6. Corporate and financial reporting
    7. Business and governance
    8. Ethics
    9. Insolvency
    10. ICAS Research
    11. Pensions
    12. Practice
    13. Public sector
    14. Sustainability
    15. Tax
  11. CPD - professional development
    1. CPD courses and qualifications
    2. CPD news and updates
    3. CPD support and advice
  12. Regulation
    1. Complaints and sanctions
    2. Regulatory authorisations
    3. Guidance and help sheets
    4. Regulatory monitoring
  13. CA jobs
    1. CA jobs partner: Rutherford Cross
    2. Resources for your job search
    3. Advertise with CA jobs
    4. Hays | A Trusted ICAS CA Jobs Partner
    5. Azets | What's your ambition?
  14. Work at ICAS
    1. Business centres
    2. Meet our team
    3. Benefits
    4. Vacancies
    5. Imagine your career at ICAS
  15. Contact us
    1. Technical and regulation queries
    2. ICAS logo request

Guidance on pensions equalisation

  • LinkedIn (opens new window)
  • Twitter (opens new window)
By Christine Scott, Head of Charities & Pensions, ICAS

14 June 2019

Main points

  • Accounts preparers and auditors need to be aware of the issues that pensions equalisation raises for financial reporting.
  • One important issue is the timing at which an obligation to compensate scheme members arises.
  • Auditors will need to consider the implications of the Lloyds judgement on their clients’ accounts in planning and conducting their audit work.

Guidance is now on hand to show how pensions equalisation will affect reporting for pension schemes and employers

Pension scheme accounts are stewardship accounts recording the payment of pensions to scheme beneficiaries in the Fund Account and recognising the assets of the scheme in the Net Assets Statement. They do not record a scheme’s liability to pay post-employment benefits which have been built up by current and former employees of the sponsoring employer.

In respect of the requirement to equalise the effect of unequal GMPs, however, pension schemes must recognise a liability when the benefits payable and related interest can be measured reliably, and the liability is expected to be material.

In March 2019, the Pensions Research Accountants Group issued detailed guidance for pension schemes on how to approach accounting for GMP-related obligations following the Lloyds judgement. This guidance should be considered alongside the requirements of the Financial Reporting Standard applicable in the UK and the Republic of Ireland (FRS 102) and the Financial Reports of Pensions Schemes: A Statement of Recommended Practice (the Pensions SORP (2018)).

The question arises as from what date the GMP-related obligation existed. This is relevant to the employer’s consideration of when to account for the obligation, once it has been reliably measured.

One view is that the effective date of the obligation is the date of the High Court’s judgement in the Lloyds case. Another view is that trustees already had this obligation which the ruling has confirmed: this would lead to a prior period adjustment being required when the obligation is reliably measured. In either case, the effective date is earlier than the date the trustees come to amend scheme benefits to comply with the Lloyds judgement.

Therefore, schemes with periods ending before the date of the Lloyds judgement, which have yet to sign off their accounts and are able to measure reliably the obligation, need to decide on whether to account for the obligation as an adjusting or non-adjusting event after the end of the reporting period.

Pension schemes recognising a GMP-related obligation or disclosing a contingent liability should set out their approach within the accounting policies note. Current estimates of obligations relating to the equalisation of GMPs range from 1% of scheme liabilities to 4%. However, obligations could be outside this range.

Sponsoring Employers

In contrast to pension schemes, employers sponsoring defined benefit schemes are required to account for their obligation to provide agreed benefits to current and former employees.

Sponsoring employees preparing their accounts in accordance with the EU-adopted International Financial Reporting Standards must account for net defined benefit pension liabilities in accordance with International Accounting Standard (IAS) 19 on Employee Benefits. Similarly employers applying FRS 102 must comply with Section 28 on Employee Benefits.

The impact of GMP-related obligations on an employer’s net defined benefit pension liability following the Lloyds judgement will depend on whether the obligation previously included an estimate for GMP-related obligations, or is being updated to include an estimate for GMP-related obligations for the first time.

However, in either scenario, any change in an employer’s net defined benefit pension obligation is likely to meet the criteria for treatment as a change in accounting estimate rather than a change in accounting policy. Therefore, it will not be necessary to account for any impact as a prior period adjustment as changes in accounting estimates are made prospectively.

Nevertheless, employers should review and update their accounting policy for pensions and other narrative disclosures around pensions to explain the impact of the Lloyds judgement on their accounts to the extent necessary for those accounts to give a true and fair view.

Auditors

The auditors of pension schemes and of employers will need to consider the implications of the Lloyds judgement on their clients’ accounts in planning and conducting their audit work. In particular, auditors applying International Auditing Standard (ISA) (UK) 540 (Revised) on Auditing Accounting Estimates and Related Disclosures should consider how this will impact on their work on GMP-related obligations. The extent of the work required to gain evidence to support the measurement of GMP-related obligations will depend on the extent of any uncertainty surrounding the estimates and the degree of complexity involved.

The revised version of ISA 540 (December 2018) applies to periods beginning on or after 15 December 2019 with early adoption permitted.

2-23-marsh 2-23-marsh
ICAS logo

Footer links

  • Contact us
  • Terms and conditions
  • Modern slavery statement
  • Privacy notice
  • CA magazine

Connect with ICAS

  • Facebook (opens new window) Facebook Icon
  • Twitter (opens new window) Twitter Icon
  • LinkedIn (opens new window) LinkedIn Icon
  • Instagram (opens new window) Instagram Icon

ICAS is a member of the following bodies

  • Consultative Committee of Accountancy Bodies (opens new window) Consultative Committee of Accountancy Bodies logo
  • Chartered Accountants Worldwide (opens new window) Chartered Accountants Worldwide logo
  • Global Accounting Alliance (opens new window) Global Accounting Alliance
  • International Federation of Accountants (opens new window) IFAC
  • Access Accountancy (opens new window) Access Acountancy

Charities

  • ICAS Foundation (opens new window) ICAS Foundation
  • SCABA (opens new window) scaba

Accreditations

  • ISO 9001 - RGB (opens new window)
© ICAS 2022

The mark and designation “CA” is a registered trade mark of The Institute of Chartered Accountants of Scotland (ICAS), and is available for use in the UK and EU only to members of ICAS. If you are not a member of ICAS, you should not use the “CA” mark and designation in the UK or EU in relation to accountancy, tax or insolvency services. The mark and designation “Chartered Accountant” is a registered trade mark of ICAS, the Institute of Chartered Accountants of England and Wales and Chartered Accountants Ireland. If you are not a member of one of these organisations, you should not use the “Chartered Accountant” mark and designation in the UK or EU in relation to these services. Further restrictions on the use of these marks also apply where you are a member.

ICAS logo

Our cookie policy

ICAS.com uses cookies which are essential for our website to work. We would also like to use analytical cookies to help us improve our website and your user experience. Any data collected is anonymised. Please have a look at the further information in our cookie policy and confirm if you are happy for us to use analytical cookies: