Pension SORP Update. November 2013

Transcription

1 Pension SORP Update November 2013

2 What are we going to cover 1

3 Setting the scene

4 Setting the scene November January December January December January 2016 UK GAAP 8 SSAPS 28 FRSs 31 UITF s FRS 102 FRS 102 Transition Transition net assets statement at 1 Jan 2014 Comparatives for 2015 accounts 31 Dec 2014 First accounting period impacted by FRS 102 SORP Revision Working Party revising SORP Draft SORP issued for comment Spring 2014 Final SORP issued Autumn

5 What s new 4

6 Investment disclosures

7 Investment disclosures FRS 102 requirements Create Note: [V2] FRS 102 requirements Assets at end of period suitably classified Information that enables users to evaluate significance of financial instruments for its financial position and performance Disaggregation of the net assets by class of financial instrument. Class = grouping of financial instruments. Takes into account the characteristics of those financial instruments 6

8 Investment disclosures SORP recommendations Net asset statement Equities Bonds Property Pooled investment vehicles Derivatives AVC investments Notes to accounts Analysis of pooled investment vehicles: Equities Bonds Hedge funds Private equity Infrastructure 7

9 Investment disclosures Audited Accounts Regulations disclosure requirements Equities Bonds Fixed interest public sector Fixed interest other Index linked Property Pooled investment vehicles Unit trusts property Unit trusts other Managed funds property Managed funds other Company operating fund registered in UK/not registered in UK Analyse all between: Quoted/unquoted UK/overseas PRAG liaising with DWP to see if regulations can be amended 8

10 Fair value determination

11 Fair value determination FRS 102 valuation hierarchy Category A Quoted price for identical asset in active market, normally bid price Category B Recent transaction for identical asset (adjusted if appropriate) Category C Valuation technique based on arms length exchange motivated by normal business transaction 10

12 Fair value determination Note disclosure required by FRS 102 Note disclosure required by FRS 102 Category 000 A B C Total Equities x - - xx Bonds x x x xx Pooled investment vehicles - x x xx Property - - x xx Derivatives x - x - Total xx xx xx xx Comparatives required 11

13 Fair value determination Category A FRS 102 definition: Quoted price in an active market... Quoted prices are readily available and those prices represent actual and regularly occurring market transaction on an arms length basis. Typical category A investments Listed securities equities/bonds Pooled investment vehicles priced and traded daily 12

14 Fair value determination Category B FRS 102 definition: Price of a recent transaction for an identical asset... As long as there has not been a significant change in economic circumstances or significant lapse of time since the transaction took place. Adjust if not good estimate of fair value. Typical category B investments Unquoted securities with infrequent trades e.g. bonds Weekly/monthly priced pooled investment arrangements property funds hedge funds 13

15 Fair value determination Category A/B examples Segregated positions Consider 31 March 2013/5 April 2013 year ends Friday 29 March Saturday 30 March Sunday 31 March Monday 1 April Tuesday 2 April Wednesday 3 April Thursday 4 April Friday 5 April 31 March Quoted Securities Price at close Reporting date Category B Price at close 5 April Quoted Securities Reporting date Category A SORP to reference category A to Business Day. 14

16 Fair value determination Category B examples Pooled positions Thursday 28 March Tuesday 2 April Friday 5 April Weekly priced fund 5 April 2013 year end Underlying securities valued at close Weekly unit price struck using 28 March underlying values Scheme year end Underlying value seven days old Category B? If adjusted does this make it a valuation technique? Category C? 15

17 Fair value determination Category C FRS 102 definition: Estimate of value using a valuation technique... To estimate what the transaction price would be... In an arms length exchange motivated by normal business considerations. Typical category C investments Bonds valued using broker quotes/evaluated prices OTC derivatives Property PIV s Private equity/infrastructure/hedge funds Insurance policies SPV s Longevity swaps 16

18 Fair value determination Comparison with IFRS/other UK reporting IFRS FRS 102/Pension DRAFT SORP FRS 102/IMA DRAFTSORP Level 1 Quoted prices Category A Quoted prices Category A Quoted prices Level 2 Observable inputs other than quoted prices Property OTC derivatives Unquoted bonds Category B Recent quoted prices Category C Valuation technique Property OTC derivatives Bonds Category B Recent quoted prices Category C(i) Valuation technique observable inputs Property OTC derivatives Bonds Level 3 Unobservable inputs Private equity Private equity Category C(ii) Valuation technique unobservable inputs Private equity 17

19 Valuation of annuities

20 Valuation of annuities 19

21 Valuation of annuities Issues What is the value of related obligation? Employer FRS 102 high quality bonds Trustee scheme funding or buy out basis Accounts for other purposes e.g. PPF s.143? What about policies which pay directly to members? Identify and bring cashflows into accounts Do we have to do it for all annuities Possible materiality exemptions Treatment of annuities on entry to PPF 20

22 Valuation of annuities FRS 102 transition requirements 1 January December December 2015 Transition net asset statement Comparatives for 2015 FRS 102 applicable No need to disclose comparatives Disclose comparative cashflows Disclose value Disclose cashflows Disclose value Disclose reconciliation to previously reported net assets 21

23 Fair value considerations for other investments

24 Fair value considerations for other investments Longevity swaps Use market based discount rates not scheme funding discount rates Shares in subsidiaries Report at fair value as one liner No need to prepare consolidated accounts but can if you want to With-profit insurance policies Value at reversionary plus terminal bonus FRS102 does not support net premium/actuarial values Private equity/ infrastructure funds Report at Net Asset Value unless intention to dispose, in which case consider discount 23

25 Investment risk disclosures

26 Investment risk disclosures FRS A retirement benefit plan shall disclose information that enables users of its financial statements to evaluate the nature and extent of credit and market risks arising from financial instruments at the end of the reporting period Risks Credit risk Market risk FX risk Interest rate risk Other price risk Disclosures Nature and extent of risks arising on financial instruments at year end Exposures to risk and how they arise Objectives, policies and processes for managing the risk and methods used to measure the risk Changes to the above from previous period SORP working party minded to extend to all investment assets 25

27 Investment risk disclosures Other credit risk disclosures Collateral held as security and other credit enhancements and how they mitigate credit risk Amount by which related credit derivatives mitigate credit risk Information about the credit quality of financial assets Details of collateral obtained and recognised as a scheme asset and plans to convert to cash 26

28 Investment risks Quantative disclosures Interest rate risk Foreign exchange risk Bonds OTC derivatives Credit risk Bonds OTC derivatives Amounts due from broker Creditor quality Investment grade Non-investment grade Collateral held x x xx x x x x x x Quantative disclosures Currency analysis: US$ Euro Yen Other Other price risk Equities Exchange traded derivatives x x x x xx x x 27

29 Investment risks Qualitative disclosures Methods to measure risks Exposure and how it arises Objectives of risk management Qualitative disclosures Risk management processes Risk management policies 28

30 Risk disclosures Issues only part of the picture Defined benefit Employer covenant Long term liabilities Funding Investment strategy Defined contribution Scheme level not directly relevant to members Does not cover other risks level of contributions, investment returns and annuity risks 29

31 Risk disclosures Issues pooled investment arrangements SORP recommends Look through approach Scheme Units Scheme has indirect risks: Credit FX Interest rate Other price risk Underlying investments Challenges Hedge funds of funds White label DC funds Alternatives AVC S 30

32 Risk disclosures Credit risk disclosures SORP recommended disclosure Segregated Pooled Exposure to credit risk quantative analysis Quality of financial instruments Collateral information Credit derivative information 31

33 Automatic enrolment

34 Automatic enrolment Employer must remit first contribution by the 19th of the second month following the month of deduction Employee opted in Employer collects contribution Employee has one month to opt out from date auto-enrolled Employee opts out Employer returns contribution to employee Employer remits contribution to scheme Employee opts out SORP accounting approach Scheme does not account for contribution or opt out returns Scheme returns contribution to employer Employer returns contribution to employee Scheme accounts for contribution and opt out return Gross basis 33

35 Pension liabilities

36 Pension liabilities Disclosure in a report alongside the financial statements: A statement of the actuarial present value of promised retirement benefits based on the most recent valuation of the scheme Date of most recent valuation Significant actuarial assumptions made and method used Information already in a summary funding statements/statement of funding principles 35

37 Questions and answers Presentation by Kevin Clark

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