Pension Schemes Statement of Recommended Practice consultation launched

The Pensions Research Accountants Group (PRAG) has launched a consultation on proposed changes to the Statement of Recommended Practice, Financial Reports of Pension Schemes 2025 (the Pensions SORP).

The Pensions SORP is being updated following The Financial Reporting Council’s latest Periodic Review of FRS 102, the Financial Reporting Standard applicable in the UK and the Republic of Ireland. The Pensions SORP was last updated in 2018.

In addition, PRAG, supported by the Pensions SORP Working Party, has taken the opportunity to update the Pensions SORP document to:

• Reflect industry developments impacting on pension scheme financial reporting, such as changes to pension scheme investment strategies; and 
• changes to pensions legislation and regulations.

Comments on the draft SORP are requested by Wednesday 17 September and can be uploaded via the PRAG website by scrolling to the end of the consultation page.

The revised Pensions SORP will be applicable for periods beginning on or after 1 January 2026.

Consultation webinar

A webinar about the proposed changes to the Pensions SORP is being planned for Friday 18 July 2025 at 10.00am for all interested parties. You can register your interest here.

Specific matters for comment, including key changes

There are six key consultation questions for respondents to consider covering the following three topics:

Fair value

• Previously, FRS 102 said that, as a practical expedient for fair value measurement, the best evidence available was usually the bid-price. FRS 102 no longer precludes the use of mid-market pricing or other pricing conventions as a practical expedient for fair value measurements within a bid-ask spread. However, the draft SORP proposes that schemes continue using bid pricing to maintain consistency and comparability in financial reporting.(covered by question 1A)
• Experience has shown that annuity valuations provided by insurers often do not provide the preparers and users of pension scheme financial statements with sufficient information, (typically due to insurer-related commercial sensitivities), to allow all of the required disclosures in relation to accounting estimates to be made. This lack of transparency can also cause issues with the ability of trustees to have the valuation audited. Therefore, the draft SORP has removed the option to use annuity provider valuations to ensure that there are no restrictions on the availability of information to meet the required disclosure standards. (covered by question1B)

Investment risk disclosures

• Market fluctuations (such as those arising during the Liability Driven Investment (LDI) crisis) have proved that liquidity risk can be relevant to pension schemes. Therefore, the proposed SORP requires liquidity risk to be included in investment risk disclosures. The FRS 102 definition of liquidity risk focuses on settling financial liabilities, however, the proposed SORP extends this to include capital commitments and potential collateral calls. (covered by question 2C)
• Inclusion of inflation risk within the investment risk disclosures was considered. However, while inflation risk can impact a scheme’s ability to pay benefits to members in the long term, the purpose of the investment risk disclosures is to highlight the risks arising from a scheme’s financial instruments and not its actuarial liabilities. As such, inflation risk hasn’t been included as a specific risk category, however, should inflation risk be relevant to a scheme’s financial instruments, this can be reported in the financial statements under ‘Other risks’.(covered by question 2D)

Sole investor pooled arrangements

• The draft Pensions SORP separates sole investor pooled arrangements from pooled arrangements open to other investors to highlight the difference in their nature. (covered by question 3E)
• The draft SORP has extended the sole investor pooled arrangements look through disclosures to include the fair value level disclosure; the current SORP already requires investment risk disclosures to be prepared on a look through basis. However, the draft SORP also removes the look through requirements for transaction costs and has clarified that detailed notes on each underlying asset class are not required.

The proposed disclosure requirements have been drafted to prevent a loss in transparency that occurs when a scheme’s previously segregated assets are transferred into sole investor pooled arrangement wrappers. It also recognises that including detailed notes on all asset categories would be onerous and not add sufficient value. (covered by question 3F)

What’s in the draft SORP document?

The draft SORP is split into three main sections:

• Section 1 – Introduction
• Section 2 – the requirements for an Annual Report
• Section 3 – the Statement of Recommended Practice (SORP)

It’s accompanied by the following appendices:

• Appendix 1 provides illustrative financial statements. The illustrative statements have been extensively updated.
• Appendix 2 provides an illustrative annual report. This is a new addition to the SORP document. The illustrative annual report provides, and references detailed regulatory disclosure requirements only.
• Appendix 3 sets out the annual report disclosures and legal requirements in the UK.
• Appendix 4 covers other UK legal requirements, including the requirement for the trustees or managers of occupational pension schemes to obtain audited accounts.
• Appendix 5 sets out the annual report disclosures and legal requirements in the Republic of Ireland.
• Appendix 6 sets out indicative fair value hierarchy levels for common investment types.

There’s a Basis for conclusions section at the end of the SORP document which summarises the main matters considered in the draft SORP.

All documents relating to the consultation can be found on the PRAG website’s Pensions SORP consultation page.