Accounting for pensions at 31 March 2023

This year raises specific issues for housing associations with Defined Benefit pension obligations at the 31 March 2023 year-end.

2022 was a particularly volatile year for financial markets, with a dramatic rise in corporate bond yields driven in part by the mini-budget, rising interest rates, and high short-term inflation.

Based on current markets, a typical housing association with a Defined Benefit participation might see a decrease in its FRS102 pension liabilities since 31 March 2022 in the region of 40% and assets decrease by around 5% for Local Government Pension Schemes (LGPS), or significantly more for Social Housing Pension Schemes (SHPS) and own schemes. This means that we expect a significant improvement in balance sheet position for LGPS participants, with the position for Trust based schemes (SHPS and own schemes) likely to see less improvement, and be more dependent on the asset investment strategy. 

FRS102 service costs for the financial year to 31 March 2024 will fall by more than 50% if a scheme is open to new benefit build up and current conditions continue.

Auditor expectations

Auditors now expect an organisation to have independently reviewed and set FRS102 financial and demographic assumptions independently from its pension fund or scheme, if material. The range of possible results appropriate under FRS102 is significant, and allowance for in-year items is not “one size fits all”, requiring an organisation’s own judgement and profile.

Making sure the assumptions and treatments that you use are realistic is therefore both a finance and governance requirement.

Actions for housing associations

You as an organisation are responsible for the choice of assumptions, treatments and results disclosed (in agreement with your auditor), and not your pension scheme or fund. For example:

Measurement and recognition of results, including:

• Asset valuation.
• Recognition of surplus.
• Inflation expectations.
• Discount rate, i.e. range of corporate bond yields at 31 March 2023.
• Life expectancy. Including allowance for recent new data on coronavirus impact.
• Salary expectations, if open to build up of new benefits.

In-year items and treatments, including:

• TPT benefit review (for those in SHPS or own scheme in TPT).
• LGPS valuation (for those in LGPS).
• Any investment hedging issues.
• Inflation and salary experience.

Available support

Year-end reporting will require liaison with your scheme or fund, as well as your auditors. You may want to obtain independent support to assist your organisation.

Isio, can help you understand what current conditions mean for your pension contributions, risks and FRS102 reporting at 31 March 2023, including:

• Audit planning.
• Low cost review of your key assumptions and accounting treatments.
• Analysis of key accounting items, balance sheet and I&E.
• Support through your organisation’s own year-end process.

Isio offers three levels of support, with an assumptions review paper for £3,750 plus VAT. Other levels of support are also available.

Get in touch with Isio to find out more, or speak with your usual Isio contact.

Isio is one of the country’s leading independent pensions advisory firms, known and respected for its agility and the team has more than 1,000 client relationships. We're working with our pensions advisers Isio to keep the sector up to date on key areas affecting housing associations.