Pensions accounting trends

Current pensions accounting developments

Market movements over the quarter

UK equities continued their strong performance for the year so far, perhaps boosted by positive expectations of the tech sector, the potential for US interest rate cuts and reduced trade tensions. The FTSE 100 Index hit new all-time highs while the FTSE All-Share Total Return Index finished the quarter 6.9% up, which means that it is 16.6% up for the year to date.

Conversely, UK government bond prices fell by 2.4% over the quarter as yields rose by c. 0.25% p.a., while high-quality corporate bond yields increased by c. 0.2% p.a. over the same period, narrowing implied credit spreads marginally. Long-term inflation expectations remained broadly unchanged.

Strong equity performance and rising bond yields will likely have improved companies’ balance sheet positions, with the exception being companies with schemes that have significant interest rate hedging in place. This means that, in aggregate, UK DB pension schemes will continue to show a significant surplus.

UK inflation update

UK inflation rose slightly, with RPI and CPI inflation rising to 4.6% and 3.8% for August respectively (from 4.4% and 3.6% in June). The relatively high levels of inflation (compared to the Bank of England (BoE) CPI inflation target of 2.0% p.a.) is noted by the BoE to be partly due to “increases in energy prices, food prices … and in some regulated prices such as water bills” (see the Monetary Policy Report - August 2025). The BoE expects CPI inflation to rise further to 4% by September. The BoE cut the base rate by 0.25% to 4.0% in August, noting that “progress in inflationary pressures” has allowed them to do this. This follows the cut to 4.25% in May.

Mortality update (“CMI 2024”)

The latest version of the Continuous Mortality Investigation model (CMI 2024) was released on 30 June. Moving from the core CMI 2023 model to the core CMI 2024 model is expected to increase the liabilities of a typical pension scheme by c.0.75%, with a larger impact at older ages. This increase in part reflects lower actual mortality rates observed over 2024. Companies will need to decide whether to use the model’s core parameters or use alternative parameters having considered the views of their actuarial advisors. Auditors will likely require evidence to support a company’s choice of parameters.

Proposed amendments for the Virgin Media case

As noted in our June edition, the UK government announced plans to introduce legislation to address issues arising from the Virgin Media judgment. Specifically, it confirmed that it intended to allow affected pension schemes to retrospectively obtain relevant actuarial confirmations that past benefit amendments were valid. The government has since proposed amendments to the Pension Schemes Bill that would enable trustees to ask the current scheme actuary to consider whether, in their opinion, the historical alterations to pension schemes were valid. This should make it easier for companies to confirm the validity of historical amendments, but auditors are likely to continue to expect disclosure on this area to reflect the latest position.

Observed market practice on pensions accounting assumptions at 30 September 2025