Pensions accounting has never been easy. But now, Covid-driven market volatility, increasing audit pressures and a fast-growing gap between the accounting and funding yardsticks have all made it much harder.

As such, it is particularly important for chief financial officers, financial controllers and company treasurers to have a clear plan on the following points:

Differentiating accounting and funding

Pensions accounting liabilities are based on an AA-rated corporate bond yield discount rate, plus the ‘best estimate’ for all the other assumptions, such as inflation and mortality, and are updated at least once a year.

On the other hand, cash funding liabilities are driven by the triennial actuarial valuation, which is a negotiation between the company and the scheme trustees within a regime that requires the assumptions to be ‘prudent’.

F