On the go: A significant proportion of defined benefit pension scheme sponsors are still working out whether and how to make an allowance for Covid-19 in their year-end accounts due to a range of issues, according to LCP.
At the actuarial consultancy’s webinar this week, 40 per cent of sponsoring employers said they were still considering whether and how to reflect the impact of Covid-19 in corporate accounts.
But of those who have decided, more than half said they would make some allowance for Covid in their accounts, an increase from previous year-ends.
LCP said the uncertainty among sponsors who still have not decided is due to problems including the subjectivity of any adjustment, a preference to be in line with peers and wider market practice leading to herding, as well as a reluctance to tail off from the pack.
Another issue for DB sponsors is that assumption changes could cause additional questions during the audit process.
The consultancy observed that companies need to have a better understanding of the long-term impact of Covid on life expectancy in their schemes.
LCP partner Jonathan Griffith explained that this is an area where scheme sponsors “could and should be proactive”, because continuing the wait-and-see approach is “starting to look out of line with market practice”.
It comes as sponsors are developing a new mindset to accounting as many schemes move into fund surpluses driven by higher gilt yields.
The biggest priority for most sponsors for the upcoming year-end is a smooth audit process, with 53 per cent of sponsors at LCP’s webinar saying this is their key objective. This marks a big shift from previous years, when many more companies were disclosing deficits and there was a focus on showing the best balance sheet they could.
More than a third (35 per cent) of sponsors said reporting an accounting surplus has no benefit to them as an organisation, and 32 per cent said that while it is important to show a surplus to highlight a strong funding position, the amount is less important.
Griffiths argued that it is crucial companies stay engaged with their schemes and make sure the pensions strategy remains aligned with wider corporate objectives.
