In a timely tribute to Charles Dickens, David Hutchings looks at developments in pension scheme accounting through the eyes of the ghost of Implementation Statements and the spirits of accountants’ past, present and yet to come. 

The past

Who remembers when Pension Scheme Annual Trustee Report and Financial Statements (“TRFS”) were only 30 pages long? Even multi billion-pound Schemes only made it to 40 pages!

Amazingly this was only 6 years ago, since then their size has mushroomed. In 2015, FRS102 was released on the world of accounting standards and a revised Pensions SORP duly followed adding more disclosure obligations for investments and requiring the revaluing of annuity assets.

Following shortly afterwards was the new DC Chair Statement, ultimately mandating the inclusion of more information on DC assets, investment charges and transaction costs.

Together, these two developments alone doubled the size of the TRFS for many Schemes!

The present

Fast forward to 2020, and new investment regulations stipulated that Schemes must publish a new governance document and include it in their TRFS – the Implementation Statement (“IS”).

For many, a decision had to be made. Any Scheme signing their TRFS on or after 1 October 2020 had to include their new IS and publish the IS online as a stand-alone document. Schemes with a year end of March/April year end wishing to avoid the cost and time of doing this had to bring forward the sign off of their accounts to 30 September 2020  - creating a shortened 6 month window to sign their accounts (from 7 months). The majority of those Scheme’s went down this route, which was a substantial challenge for accounting and audit teams juggling pandemics and lockdowns.

Fast forward again a year and a new timetabling headache emerges. There is confusion as to where those who accelerated their accounts sign off in 2020 stand; when did they have to issue their IS? when did they have to sign off their accounts? did the IS have to be included in their signed accounts? The concern was that these Schemes might have to not only issue the IS, but also include it in their signed accounts. If these were both to be done by 1 October 2021, then it seemed that the statutory deadline was being reduced to 6 months for a year.

Around that time, we encountered many contradicting views and interpretations across the industry. Thankfully, a consensus seemed to eventually emerge; you would remain compliant as long as the IS was issued by 1 October 2021, with the TRFS (including the IS) signed afterwards.

The future

So now a high proportion of TRFS’s are hovering around the 100 page mark, what’s next for financial disclosure? The next related regulatory update to impact disclosures will increase them further - TCFD (Taskforce on Climate related Financial Disclosure) will hit very large (£5bn+ assets) pension schemes from 1 October 2021 and large (£1bn+ assets) schemes a year later.

Taking on the role of the spirit of the accountant yet to come, my thoughts on how we can improve our TRFS are as follows.

We need to remember that the purpose of TRFS is to provide information about the reporting entity's financial performance and financial position. Personally, I feel whilst additional reporting is clearly very important to the overall good governance of a Pension Scheme, the value it adds in achieving this purpose is becoming ever more questionable as costs go ever upwards. To improve TRFS readability, using hyperlinks to supporting governance documents would seem to be a practical and simple solution. This would leave the reader with just the information they are pursuing when they choose to pick up a set of TRFS in the evening over their cocoa and in front of a crackling fire.

Do you have any thoughts on how TRFSs should evolve? On how we can make them more accessible, or a more powerful tool for Trustees and Members? If you do, then I’d love to hear them.