Invitation to comment
Pensions Research Accountants Group (PRAG) is requesting comments, from all interested parties, on the proposed amendments to the Statement of Recommended Practice, Financial Reports of Pension Schemes 2025 (the “draft SORP”).
The deadline for submission of comments is Wednesday 17 September 2025.
All documents can be found at: https://www.prag.org.uk/prag-sorp-consultation-2025
We are committed to developing the SORP based on evidence from consultation with all stakeholders, including users, preparers and others.
Comments are invited, in writing, on all aspects of the proposed amendments. In particular, comments are sought in relation to the questions below.
Comments should be submitted, via the website: https://www.prag.org.uk/prag-sorp-consultation-2025
Unless specifically requested otherwise, all submitted comments will be made publicly available (as soon as possible after receipt) via the above website.
Webinar
It is currently proposed to hold a webinar on Friday 18 July 2025 at 10.00am for all interested parties to hear, first-hand, further details about the proposed amendments to the draft SORP.
Please ‘register’ for the webinar via the following link: Pensions draft SORP 2025; Webinar Briefing.
Background
The SORP was last reviewed and updated in June 2018.
Since that time, the Financial Reporting Council (FRC) has made a number of amendments to FRS 102 arising from, inter alia, the FRC’s second periodic review. There have also been a number of industry developments which impact on pension scheme financial reporting; for example in pension scheme investment strategies. In addition, there have been changes to pensions legislation and regulations.
As a result of a comprehensive review process, the draft SORP contains a large number of amendments to align the SORP with FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (issued September 2024), and to reflect current pension legislation and regulations, alongside updates to reflect current pension scheme and industry developments.
We have consulted extensively across stakeholder groups, as to any proposed changes to the SORP, and received a number of suggestions for amendments, additional clarifications and illustrative examples. These have been incorporated in the revision, where considered appropriate. We thank all parties, including the FRC, for their engagement in the process of updating the SORP.
As the pensions market develops, and as and when further guidance is considered appropriate or necessary, then consultations will be held with stakeholder groups and updates to the SORP will then be provided. Stakeholder groups are always welcome to suggest amendments to the SORP at any time.
It is noted that the SORP is a technical reflection of how to account for pension scheme assets and transactions in line with FRS 102.
The full document is split into three sections:
Section 1 – Introduction
Section 2 – the requirements for an Annual Report
Section 3 – the Statement of Recommended Practice (SORP)
We encourage all interested parties to study the full document in its entirety.
We have also provided a number of appendices.
Appendix 1 (Illustrative financial statements) has been extensively updated and provided to assist financial statement preparers. It is not intended to be a definitive checklist and should not be used in isolation from the SORP itself. To assist preparers, it now also provides cross references to source material, such as FRS 102, the SORP, etc.
Appendix 2 (Illustrative annual report) is a new section that provides and references the detailed regulatory disclosure requirements (including FRS 102 and the SORP) only. It does not provide further guidance on any voluntary or additional disclosures that trustees may wish to make in the annual report.
Appendices 3 and 4 set out the legal disclosure requirements for the UK in respect of the annual report for pension schemes and the legal framework in the UK, respectively. Appendix 4 also sets out the disclosure requirements under the Audited Accounts Regulations.
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.
At the end of the full document is a section entitled ‘Basis for Conclusions’ (to which reference should be made), where we summarise the main matters considered in developing the draft SORP.
Questions
Question 1: Fair value (Section 3.11)
Previously, FRS 102 said that, as a practical expedient for fair value measurement, the best evidence available was usually the bid-price. FRS 102 revised 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. The proposed SORP requires the continued use of bid pricing (as in the current SORP), as opposed to allowing individual choice, to maintain consistency and comparability in financial reporting and acknowledging that a practical expedient is not required as bid pricing is readily available.
A. Do you agree with this above proposal? If not, why not?
When the previous SORP was issued, the use of valuations carried out by the annuity provider was permitted to assist with the transition of including annuity (insurance) policies at fair value. Experience has shown that valuations provided by annuity providers regularly do not provide the preparers and users with sufficient information (typically due to it being commercially sensitive to the insurer) to allow all of the required disclosures in relation to accounting estimates to be made. The lack of transparency can also cause issues with the trustee’s ability to have the valuation audited. As such, the proposed SORP has removed the option to use annuity provider valuations so as to ensure that there are no restrictions on the availability of information to meet the required disclosure standards and noting that most defined benefit schemes are already obtaining a valuation performed by the scheme actuary for the purposes of the financial statements and as part of the triennial actuarial valuation.
B. Do you agree with this above proposal? If not, why not?
Question 2: Investment risk disclosures (Section 3.14)
Since the 2018 SORP, market fluctuations (such as those arising during the Liability Driven Investment (LDI)crisis) have proved that liquidity risk can be relevant to pension schemes. As such, 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. It has not been extended to include liquidity risk in relation to maintaining a desired hedging target as this is a voluntary measure and trustees can elect to deviate from target if liquidity is unavailable.
C. Do you agree with this above proposal? If not, why not?
Inclusion of inflation risk was considered, and it was determined that, whilst 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 has not been included as a specific risk category however, should inflation risk be relevant to a scheme’s financial instruments (for example in determining the fair value of annuity policies), this can be reported under Other risks in accordance with paragraph 3.14.8.
D. Do you agree with this above proposal? If not, why not?
Question 3: Sole investor pooled arrangements (Section 3.21)
The proposed SORP separates sole investor pooled arrangements from pooled arrangements open to other investors to highlight the difference in their nature.
E. Do you agree with this above proposal? If not, why not?
The proposed 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, it has also removed 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, particularly when considering that fair value level and investment risks disclosures are already performed on a look through basis.
F. Do you agree with this above proposal? If not, why not?
Question 4: Other comments
G. Do you have any other comments on the proposed amendments set out in the draft SORP?
THANK YOU
Andy Lowe
Chair – PRAG SORP Working Party
Date: 24 June 2025