FRS102 reporting – current considerations

11 March 2021

The 31 March 2021 year end is approaching and, at the time of writing, the FRS102 position for housing associations with LGPS and SHPS exposure is likely to be significantly worse than 2020. Market conditions and increased auditor scrutiny mean that a housing association needs to be involved in the decision making and judgement required to set assumptions, accurately measure pension assets and allow for legal decisions such as McCloud, GMP equalisation and Goodwin. 

Below, we explore the key issues to be aware of and what conversations you should be having with your fund and your auditors. 

If you would like to discuss any of these issues in relation to your arrangements, Isio are providing accounting support packages from £2,250 plus VAT. Please email

Movement in balance sheet and I&E to 31 March 2021

(Please note, the information here was correct at the time of writing. Markets are volatile and may change again before 31 March 2021)

Year end 2020 was a relatively favourable date for FRS102 reporting. Although assets were affected by the coronavirus pandemic, there was a spike in corporate bond yields at 31 March 2020 which are referenced when calculating liabilities.

Corporate bonds have decreased over the year, coupled with an increase in inflation. Taken together, this suggests an increase in the FRS102 measure of liabilities of over 30%, before allowing for changes in the construction of RPI and mortality assumptions (see below).

This increase in liabilities is offset to a degree by the recovery of assets values, broadly around 20% at the time of writing, but overall balance sheets will have increased significantly. Organisations should also be aware that I&E charges for 2021/22 will also be considerably higher.

Choice of assumptions

A housing association’s choice of FRS102 assumptions can have a large impact on the final accounts and is the responsibility of the directors, not the pension scheme. An organisation should look to review all its chosen assumptions to ensure they are appropriate and support its business objectives.

As well as market movements over the year, there has also been a structural change which impacts the inflation measure used to increase pension benefits each year (for the majority of housing association liabilities this is CPI). On 25 November 2020, the government and UK Statistics Authority’s joint consultation response on RPI reform was published. This confirmed their intention to amend the RPI calculation methodology to be aligned to that already in use for the calculation of the CPI (including housing) with effect from 2030 (known as CPIH). RPI reform does not affect how CPI is calculated in practice, however, the approach to setting the CPI inflation assumption needs to be updated to reflect the reforms. This is expected to lead to an increase in liabilities.

McCloud, GMP equalisation and Goodwin

A reserve will continue to be required for additional benefits as a result of the McCloud judgment and GMP equalisation, if material. There are two additional items which may be required this year, again if material:

  • GMP equalisation – there could be a need to recognise additional liabilities on balance sheets in respect of historic transfers
  • Goodwin – following two key cases (Goodwin vs DWP and Walker vs Innospec), the Treasury has confirmed public service schemes should be changed to address any direct discrimination on the grounds of sexual orientation, specifically arising from survivor benefits. Whilst unlikely to significantly change funding costs, there may be an accounting impact as any change would be made retrospectively to 5 December 2005, when civil partnerships were introduced, and may therefore trigger a past service cost.

Accurate asset measurement

Asset measurement continues to draw focus from auditors. Auditors are also increasingly expecting accurate information up to the effective date being used, in particular, cash flows and asset valuations.  This often takes a reasonable amount of time before these are finalised. Housing associations may wish to plan for their final disclosures to be produced on the finalised asset valuations, meaning a default approach may not be efficient. This will apply in particular to LGPS Funds.

Actions for housing associations

Given these areas of judgement, it is important that you plan ahead, have the correct conversations with your actuaries and auditors, and set your own bespoke approaches where required. This applies whether you participate in SHPS, LGPS or your own scheme. 

If your LGPS Fund is asking you to set assumptions before the end of March 2021, or to sign off on estimated assets, look at this carefully. With increasing scrutiny from auditors, this is unlikely to be acceptable but potentially not all funds are aware of this.

Other pensions issues

There are a number of other pensions issues on the horizon which might affect your housing associations:

  • SHPS valuation – initial employer results are expected to be issued by TPT Retirement Solutions in April 2021. The NHF will be providing support on how to respond to this and what actions a housing association can take.

  • McCloud implementation – LGPS Funds (as well as all unfunded public sector schemes) are now looking at the huge task of implementing the benefit remedy set by the McCloud case. Housing associations should be aware that this will impact on staff in the LGPS later in 2021. The NHF will look to provide a checklist for housing associations to manage this with their employees.