Financial reporting and the Virgin Media case
The Institute of Chartered Accountants in England and Wales (ICAEW) has published an information note on reporting pension scheme liabilities in financial statements in light of the uncertainty created by the Virgin Media judgment (which held that certain amendments made by schemes that were contracted-out on a section 9(2B) basis between 1997 and 2016 are void unless a necessary actuarial confirmation was provided). The note is primarily aimed at scheme sponsors and their auditors.
The note discusses the ways in which trustees may choose to approach the current uncertainty, ranging from a ‘wait and see’ strategy, potentially including a high-level initial analysis of relevant amendments, through to further information gathering or, in appropriate cases, a full detailed analysis of the position. It then sets out three options for scheme sponsors when addressing the ruling in their financial statements:
- No recognition or disclosure: this approach is only likely to be appropriate where trustees are confident that the ruling has no impact or that any increased liabilities would not be material. Sponsors wanting to use this approach will wish to discuss this with their auditor as far in advance as possible.
- Include a disclosure in the pension note: this might include a brief description of the case and its potential implications, as well as an indication of the continuing uncertainties. The ICAEW suggests this is likely to be the appropriate option for most schemes, given that the majority will not have made a detailed assessment of the impact on their scheme pending the outcome of future court cases or DWP intervention.
- Remeasure the DB liabilities: the ICAEW suggests that this is unlikely to be appropriate for most schemes, given the ongoing uncertainty and the fact that it is unlikely that any change to liabilities can be accurately quantified at this stage. If this approach is taken, then it is likely that a prior year adjustment would be needed; historic amendments that are found to be void will always have been void and so need to be addressed as a historic misstatement.
The ICAEW notes that the approach taken by auditors will depend on the specific circumstances of each scheme. Early communication with the scheme sponsor will be important. Legal advice obtained by trustees may not always be shared with the scheme sponsor, meaning that sponsors may need to obtain their own advice to share with their auditor. Issues around legal privilege should always be considered before sharing information between trustees, employers and third parties; auditors and sponsors should discuss this with trustees in good time.
The ICAEW suggests that, in most scenarios, there are unlikely to be any grounds to challenge a sponsor’s decision not to remeasure the defined benefit obligation as a result of the Virgin Media ruling. Auditors must then go on to consider whether appropriate disclosure of the ruling and its implications has been made in the auditor’s report and, again, in most scenarios no modification to the auditor’s report is expected to be necessary.
Read the ICAEW information note.
TPR blog post: regulatory approach over the next year
The Pensions Regulator (TPR) has published a blog post discussing its ongoing shift towards a more ‘prudential’ style of regulation. This will include engagement with industry to encourage collaboration, ensure that TPR’s expectations are clear and identify issues early. TPR also stresses that it will step in and intervene when necessary. More specifically, TPR sets out its priorities, including:
- Improving data standards and information sharing.
- Changing how it supervises the most strategically significant schemes, starting with master trusts (see below).
- Setting out its future approach to enforcement and tackling serious crimes.
- Progressing the joint value for money framework.
- Providing new guidance on alternative models of provision for DB schemes.
Read TPR’s blog post.
TPR: changes to the supervision and regulation of the DC market
TPR has announced changes to its approach to the supervision and regulation of the DC market, with schemes split into four segments based on their risk profile:
- Monoline master trusts (larger schemes that present a higher risk to the market).
- Commercial master trusts (including those that form part of an insurance offering).
- Non-commercial (industry-wide) master trusts and collective DC schemes.
- Single/connected employer DC schemes.
Different levels of engagement will apply to each market segment. Each master trust in the monoline and commercial segments will have a dedicated team of named individuals allocated to it, with expertise in financial analysis, business strategy, investment and governance. The same expertise will be available for non-commercial master trusts, CDC schemes and single/connected employer schemes. This ‘expert-to-expert, risk-focused supervision approach’ is expected to lead to fewer and more targeted data requests and meetings, and improved deployment of both TPR and scheme resources.
Alongside a press release on the changes, TPR has published a report on its recent pilot study, working with three large master trusts, in which it tested its new approach.
Read TPR’s press release on oversight of the largest DC schemes.
Read TPR’s report on its master trust supervision pilot.
Pensions Academy Online, March 11 and 13, 2025: register now
Our next Pensions Academy Online webinars will take place on Tuesday, March 11 and Thursday, March 13, 2025. Each webinar begins at 9:30am and will last approximately one hour. Use the link below to register for:
Cyber risks and mitigations in the pensions world – Tuesday March 11: members of our specialist cyber team will share insights on mitigating the risks (and, in the worst case scenario, dealing with the aftermath) of cyber breaches. How can pension scheme trustees be better equipped to deal with this pervasive and ever-evolving threat?
Legal update – Thursday March 13: we’ll round up all the latest developments and outline what’s on the pensions horizon.
Click here to register for either or both of our Pensions Academy webinars.
