Pensions accounting trends

Current pensions accounting developments

Market updates over the quarter

UK equities continued to perform positively during the third quarter of 2026, despite ongoing geopolitical uncertainty and concerns around inflation and economic growth. The FTSE All-Share Total Return Index increased by 2.4% over the quarter, meaning it was almost 10% up for the year to date.

UK government and corporate bond yields came under upward pressure during the quarter, rising by over 50 basis points. This was in part due to persistent inflation concerns, higher energy prices and uncertainty surrounding the economic outlook.

Long-term inflation expectations continued to be influenced by developments in energy markets and geopolitical uncertainty, rising by over 20 basis points during the quarter.

Despite higher inflation expectations, higher bond yields and steady equity performance should continue to improve many companies’ strong pensions balance sheet positions. 

UK inflation update

UK inflation increased over the quarter, with annual RPI and CPI inflation reaching 3.4% and 3.1% respectively in August, compared with 3.0% and 2.6% in June. The increase was largely driven by higher energy and fuel prices, exacerbated by the ongoing conflict in the Middle East.

The Bank of England's Monetary Policy Committee (MPC) voted to maintain the base interest rate at 3.75% at its September meeting, although three members voted for an increase to 4.0%. The MPC highlighted the risk of further inflationary pressures from rising energy prices, with inflation expected to increase further over the coming months and remain above the 2% target for longer than previously anticipated. 

Authorised member surplus payments

Draft legislation was published in July that will permit surplus assets in ongoing defined benefit schemes to be used to pay one-off lump sums to members and dependants from April 2027. The payments would be at the discretion of trustees and treated as pension income for tax purposes.

The legislation will only permit these payments and does not itself give trustees the power to make them, meaning scheme rules may need to be amended. The proposals provide companies and trustees with an additional option for sharing scheme surplus with members and may therefore form part of wider discussions around the use of surplus. Companies should make sure they are fully aware of the accounting implications of any surplus sharing agreements. 

Proposed changes to pensions “triple lock”

At the Labour Party Conference in September, the Government announced plans to reform the State Pension “triple lock” from 2030. Under the proposals, annual increases would be based on the higher of CPI inflation and 2.5%, removing the existing link to earnings growth, with additional safeguards to maintain pension values relative to average earnings.

GMP conversion and fixed-rate revaluation

In September 2026, the Department for Work and Pensions (DWP) launched consultations on changes to simplify and clarify the Guaranteed Minimum Pension (GMP) conversion process and on retaining the current 3.25% p.a. fixed rate of GMP revaluation for members leaving pensionable service between April 2027 and April 2032. The proposed conversion changes could help schemes progress outstanding GMP equalisation exercises, and companies should monitor developments and consider any accounting implications for their schemes.

Observed market practice on pensions accounting assumptions at 30 September 2026