Pensions accounting trends

Current pensions accounting developments

Market movements over the quarter

UK equities rose over the quarter, on the back of stronger-than-expected performance by larger UK companies. Having been over 7.5% up in early March, the FTSE All-Share Total Return Index ended the quarter 4.5% up, with fears over tariffs having reduced the earlier gains. This was before the US President’s “Liberation Day” announcement on 2 April led to large falls in global equity markets.

UK government and high-quality corporate bond yields both ended the quarter higher, up by approximately 0.15% p.a. and 0.25% p.a. respectively. Credit spreads therefore widened by around 0.10% p.a. over the period, perhaps reflecting concerns over the UK’s economic outlook. Long-term inflation expectations fell slightly, by approximately 0.05% p.a. over the quarter.

These market movements are likely to have improved balance sheet positions, with UK DB pension schemes continuing to show a surplus, as estimated by PwC, although for schemes holding equities, this will have been affected by the significant falls in early April.

UK inflation update

UK inflation showed mixed but modest movements in early 2025, with RPI and CPI rising to 3.6% and 3.0% in January (from 3.5% and 2.5% in December), before falling to 3.4% and 2.8% in February. The Bank of England (BoE) cut the base rate by 0.25% to 4.5% in February - its third consecutive quarterly cut - citing progress in reducing inflationary pressure (see the Monetary Policy Report - February 2025). The BoE expects inflation to “rise temporarily this year”, driven by energy costs and regulated price changes (e.g. water), before falling back towards the 2% target.

CMI 2024

The Continuous Mortality Investigation (CMI) plans to release the CMI 2024 model in the second quarter of 2025. The model is expected to replace the “w” parameters, which adjusted how much weight each year was given in the model (to reduce the impact the pandemic years had on its projections of future mortality rates), with a new parameter (expected to be called the "half-life" parameter) which determines how quickly the excess deaths observed during the pandemic are assumed to reduce over time.

The model will also better reflect how mortality rates have varied by age since the pandemic, with older-age groups' rates falling sharply to record lows but younger-age groups’ rates remaining above pre-pandemic levels. Given that defined benefit pension schemes' members tend to be older than the national average, adopting the new model is likely to increase liabilities, all else being equal. Until the CMI 2024 model is released, the CMI 2023 model will continue to be the most commonly used by companies.

Virgin Media case

Since our December 2024 update, the ICAEW has published commentary on auditor and accounting considerations relating to the judgment, whilst there was a written statement from the Pensions Minister confirming that the government is aware of the potential impact of the judgment and is actively considering its next steps. A recent court case, the outcome of which is not likely to be known until the summer, may also provide some guidance. However, given that there have been no substantial changes, we would not expect a change in auditors’ positions, which has tended to focus on requiring the inclusion of narrative disclosure where proportionate.

Observed market practice on pensions accounting assumptions at 31 March 2025