Bulletin 45 – 2021 Accounting disclosures – a shock to the system

by David Davison   •  

We’ve had a lot of questions from LGPS participants this year about their FRS102 results, as in many cases they’ve shown a material deterioration over the 2020 position.

First the good news. Asset returns (including contributions) over the year to 31 March 2021 for most funds have been strong, with values improving by anywhere between 15% and 30% based upon what I’ve witnessed. Given this, there was an expectation amongst admitted bodies of an improvement over the 2020 disclosure position.

The bad news, however, is that we’ve also witnessed something of a ‘triple whammy’ over the same period.

  • Inflation – benefits in the LGPS are revalued for leavers by inflation, as are projected pensions and pensions in payment. As inflation increases, this places a higher value on the liabilities. The rise has been in the region of 0.8%, increasing liabilities by around 15%.
  • Discount rate – this is the rate future projected benefits are ‘discounted’ by – the higher the rate the lower the value of the liabilities. The discount rate set under FRS102 uses high quality corporate bonds and the returns on these have fallen, thereby placing a higher value on the liabilities. This reduction has been around 0.3%, which has added around 7.5% to liabilities.
  • Salary increases – as inflation has risen, the Fund Actuary when preparing the figures has tended to maintain the gap to salary increases, also adopting a higher salary increase assumption, which further worsens the funding position.

As liabilities have tended to be higher than asset values on the FRS basis, the impact has tended to have been a worsening of the FRS funding position, resulting in a higher deficit figure.

What most Directors /Charity Trustees don’t realise is that it is they, not the Fund Actuary, who have ultimate control over the assumptions used, subject to any required actuarial advice having been taken.

The charity can therefore choose to use a different set of assumptions, if those are more suitable, bearing in mind that one set of global assumptions issued by the Fund Actuary can’t be specific to each employer. You might be surprised by how small changes can have a material impact, as shown in the table below.

Change in assumption

Change in liability

+0.1% p.a. discount rate


-0.1% p.a. inflation


-0.5% p.a. salary increases



Even though you may have already received your results, it’s not too late to do something about this if your balance sheet position is important. You can consider an alternative set of assumptions and have your report re-run. This may incur some additional costs but they may be minor in relation to the overall improvement in the funding position which might be achieved.

We provide this service for many of our clients, so don’t hesitate to contact us if you would like to discuss or need more information.

Further reading

Not on the high street

by Angela Burns   •  

Dashboard Identity – how high is the bar?

by Colin Wheeler   •  

Back to the future

by Cyril Gaffney   •  

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