The Pensions Research Accountants Group (PRAG) recently launched a consultation on proposed changes to the Statement of Recommend Practice, Financial Reports of Pensions Schemes 2025 (the “draft SORP”).
Since the last Pensions SORP, which was published in 2018, there have been several amendments to FRS 102, the main accounting standard applicable to pension schemes in the UK. While the more substantial changes from the recent FRS 102 periodic review (leases and revenue recognition) aren’t expected to significantly impact pension schemes in the UK, the PRAG SORP Working Party have used the opportunity to update the draft SORP to reflect industry developments and changes to pensions legislation and regulations.
What topics are covered in the key consultation questions?
Fair Value – Pricing
Previously, FRS 102 said that, as a practical expedient for fair value measurement, the best evidence available was usually the bid-price. The revised FRS 102 no longer precludes the use of mid-market pricing or other pricing conventions. The draft SORP proposes that schemes continue using bid pricing to maintain consistency and comparability in financial reporting.
Fair Value – Annuity provider valuation
The 2018 SORP allowed a valuation carried out by an annuity provider to be used when including annuity policies at fair value. The draft SORP proposes to remove the option to use annuity provider valuations, as experience has shown that these valuations do not provide preparers and users with sufficient information for the required disclosures. This change is not expected to have a significant impact, with most DB schemes already obtaining a valuation performed by the scheme actuary for the purposes of the financial statements and the triennial actuarial valuation.
Investment risk disclosures
Since the 2018 SORP, market fluctuations (such as those arising from the Liability Driven Investment crisis) have created a liquidity risk for pension schemes. The draft SORP proposes that an explanation of liquidity risk is included in the investment risk disclosures. The FRS 102 definition of liquidity risk focuses on settling financial liabilities. However, the draft SORP extends this to include capital commitments and potential collateral calls.
Sole investor pooled arrangements
Sole investor pooled arrangements arise when the Scheme is the single investor in a pooled investment fund. These funds can be customised to meet the specific needs of the individual investor.
The draft SORP requires disclosures that separates sole investor pooled arrangements from pooled arrangements open to other investors to highlight the difference in their nature.
The draft SORP extends the sole investor pooled arrangements look through disclosures to include the fair value level disclosures (the current SORP already requires investment risk disclosures to be prepared on a look through basis). However, it has also removed the look through requirements for transaction costs and has clarified that detailed notes on each underlying asset class are not required.
Are there any other changes?
Going Concern
Additional guidance regarding common scenarios where a scheme is still considered to be a going concern, but where a material uncertainty exists has been included. For example, the draft SORP recognises that there is a difference between a formal decision being made to wind up a scheme and a strategic decision being made to discharge member obligations (e.g. through buy-out of member liabilities). While the draft SORP does stress that each Scheme will encounter unique scenarios when faced with going concern considerations, this will be welcome news to those involved in pension scheme accounting with the uncertainty around going concern recently becoming a more common problem.
Illustrative Financial Statements
The illustrative financial statements have been updated from the 2018 SORP to expand the illustrative disclosures and to include cross references to source material (such as FRS 102).
Illustrative Annual Report
The illustrative annual report is a new appendix which illustrates how the regulatory disclosure requirements should be met. The example is not exhaustive, and trustee judgement should be used.
What’s next?
The public consultation closes on Wednesday 17 September 2025 and with the Pensions SORP being effective for p/c 1st January 2026, we should expect the published SORP in Q4 2025. Keep an eye on our newsletters and public courses for further details.
Maya Norbury, July 2025
