The 2018 Pension SORP is applicable for years commencing on or after 1 January 2019, allowing good time to implement the changes. Trustees may want to adopt the 2018 SORP early, so an approach should be agreed, ensuring administrators and accounts preparers are on board.
The updates ensure consistency with the current version of FRS 102 [PDF] and pension legislation. The changes include the withdrawal of transitional investment disclosure requirements, and the incorporation of some minor clarification points.
The good news is that the update of the Pensions SORP is not a major overhaul, but a consolidation of changes brought in by FRS 102, regulatory updates, and clarification on certain points.
In many cases, most pension schemes will already be complying with many of the changes. However, there are a number of areas that trustees and accounts preparers should look out for to ensure they are fully compliant.
- The fair value hierarchy disclosure has been amended. The transitional option to use categories a, b and c has been removed, and the requirement is now to use a level 1, 2 and 3 hierarchy. There is further hierarchy guidance based on the Investment Disclosure Guidance issued jointly by the Investment Association and PRAG in 2016. This guidance has already been very widely adopted by the pensions industry.
- The overall approach to fair value determination remains unchanged and the SORP continues to refer to categories in the context of fair value, to ensure no change in the way fair value is determined.
- Clarification that the 5% concentration disclosure includes investment holdings in pooled investment vehicles.
- Confirmation of the requirement to disclose the legal nature of pooled arrangement and the trustees’ approach to managing the direct credit risk.
- Further guidance in relation to common investment funds.
- Full comparatives are required for all figures within the financial statements, unless stated otherwise. Two exceptions are:
- the investment movement table
- the derivatives disclosures, although comparative totals are required.
- For hybrid schemes where full comparative information is not given for all amounts in the Fund Account for practical reasons, further disclosures are now required, including of sub-totals, in the notes.
- Disclosures are required where there are significant benefits pending at the year-end.
- Where a member’s benefit exceeds the Lifetime Allowance or Annual Allowance, the member is liable for tax. This tax can be settled by the scheme on behalf of the member and subsequently deducted from the benefit when paid. The payment can be:
- expensed in the accounts, on the basis that the cost is paid through reduced benefit payments
- recorded in the accounts as a debtor, which is settled by the member when the member’s benefit is paid.
- Clarification for the position with regard to the requirements for small schemes. It was felt that differing requirements for small and large schemes would be discriminatory against small scheme members, consequently the SORP does not include any exemptions for small schemes as allowed under FRS 102.
How we can help
If Trustees have any concerns regarding the implications of the new SORP, then seeking specialist advice is essential. We are able to draw on our in-depth knowledge to support Trustees through the new disclosure requirements.