IAS 26: Accounting and reporting by retirement benefit plans
The financial statements of pension plans themselves: net assets available for benefits, and the actuarial present value of promised benefits.
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What it is: The rules for the accounts of a pension plan itself, not the employer. (The employer’s accounting is IAS 19.)
The key idea: the plan reports its net assets available for benefits. A defined benefit plan also shows the actuarial present value of the pensions promised, so members can see any surplus or deficit.
Example. A pension fund holds investments worth £50m. The actuary values the promised pensions at £56m. The plan shows a deficit of £6m.
Key words
- Retirement benefit plan
- An arrangement providing benefits to employees on or after leaving service, funded by contributions.Example: A company pension scheme run by trustees.
- Net assets available for benefits
- The plan’s assets less its liabilities other than the actuarial present value of promised benefits.Example: Investments £50m − payables £0.2m = £49.8m.
- Actuarial present value of promised retirement benefits
- The present value of the expected payments to current and past employees for service already given.Example: £56m, worked out by the plan’s actuary.
- Vested benefits
- Benefits that employees have a right to even if they leave.Example: Pensions earned by staff who have completed the qualifying period.
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Who it applies to
The financial statements of retirement benefit plans, where such reports are prepared. Not the employer (IAS 19).
Defined contribution plans
The report contains a statement of net assets available for benefits and a description of the funding policy. The focus is on investment performance and the plan’s assets.
Defined benefit plans
The report contains either:
- a statement showing net assets available for benefits, the actuarial present value of promised retirement benefits (split between vested and non-vested) and the resulting excess or deficit; or
- a statement of net assets available for benefits, with a note disclosing the actuarial present value of promised benefits, or a reference to this information in an accompanying actuarial report.
The actuarial present value may be based on current or projected salary levels; the basis used is disclosed.
All plans
- Investments are carried at fair value (for marketable securities, market value).
- Also include a statement of changes in net assets available for benefits, a summary of significant accounting policies, and a description of the plan.
Worked example
A defined benefit plan’s report at 31 March:
| £m | |
|---|---|
| Investments at fair value | 50.0 |
| Contributions receivable | 0.4 |
| Less: benefits payable and other liabilities | (0.6) |
| Net assets available for benefits | 49.8 |
| Actuarial present value of promised benefits: vested | 42.0 |
| Actuarial present value of promised benefits: non-vested | 14.0 |
| Total promised benefits | 56.0 |
| Deficit | (6.2) |
The employer company would separately account for its net defined benefit liability under IAS 19, which uses its own measurement rules.
Practice questions
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