Defined benefit pension scheme note (FRS 102 Section 1A)

A defined benefit (final salary) pension scheme promises members a pension based on their pay and service, so the company carries the shortfall or surplus of the scheme on its own balance sheet. This note explains the scheme and shows the figures behind that balance.

What this note shows

A description of the scheme, followed by up to three tables:

• Amounts recognised in the statement of financial position – the fair value of the scheme assets, the present value of the scheme obligations and the net pension asset or liability, for this year and last.
• Movement in the net pension asset/(liability) in the year – the opening balance, the current service cost, the net interest, the remeasurement recognised in other comprehensive income, the employer contributions and the closing balance.
• Principal actuarial assumptions – the discount rate, inflation (CPI) and the rate of increase in salaries.

A table only prints when it has figures. The note is part of FRS 102 Section 1A accounts; it is not available in FRS 105 micro-entity accounts.

What changes on the primary statements

A defined benefit scheme affects more than the note:

• Balance sheet – the net balance has its own line below provisions for liabilities, titled Defined benefit pension liability for a deficit or Defined benefit pension asset for a surplus, and is included in net assets.
• Income statement – the remeasurement (actuarial gains and losses) is other comprehensive income. When there is one, the income statement ends with the profit for the financial year, the remeasurement and Total comprehensive income for the financial year.
• Statement of changes in equity – if you include it, the remeasurement has its own Other comprehensive income row.

The remeasurement is not part of the profit for the year, so it does not reach the corporation tax computation.

Where the figures come from

The net balance and the costs come from the trial balance. Post them to these accounts (they are matched automatically when you import a trial balance with these or similar names):

• Defined benefit pension liability or Defined benefit pension asset – the net balance at the year end, with last year's balance as the comparative.
• Defined benefit pension current service cost – charged within administrative expenses.
• Net interest on defined benefit pension liability – charged within interest payable.
• Actuarial gains and losses on defined benefit pension scheme – the remeasurement, posted to the profit and loss reserve.

You type in what the trial balance cannot hold, from the actuary's report: the scheme assets and obligations for both years, the actuarial assumptions and, if you want to state it, the employer contributions. If you leave the contributions blank, the note uses the figure that makes the movement table reach the closing balance. If you enter them, any difference prints as Other movements.

“Pension liability” on its own is the creditor for unpaid workplace pension contributions, not the defined benefit balance.

Completing the note in Tax Optimiser

Open the period, choose Accounts, then Notes in the left Actions menu. Select Defined benefit pension scheme in the list. It has two sections.

1. In the first section, set Show this note in the accounts to Yes, click Use Template and choose the wording that fits, or type your own description.
2. In the figures section, set the note to Yes and enter the scheme assets and obligations for both years. Enter the obligations as a positive figure.
3. Check that the net figure agrees with the balance sheet figure shown beneath it. If it does not, a warning appears and the period also shows a warning.
4. Enter the employer contributions if you want to state them, and the actuarial assumptions as percentages (for example 5.10).
5. Click Save changes to save the note and rebuild the accounts preview.

Add the Defined benefit pension scheme accounting policy as well: see accounting policies.

Wording templates

• Scheme open to accrual – describes the scheme, the separately held assets and the most recent actuarial valuation, and states the contributions expected next year. You are asked for {{SchemeName}}, {{ValuationDate}} and {{ExpectedContributions}}; the year-end date is filled in for you.
• Scheme closed to future accrual – the same description for a closed scheme, with the deficit contributions agreed under the recovery plan. You are asked for {{SchemeName}}, {{ValuationDate}}, {{DeficitContributions}} and {{RecoveryPlanEndDate}}.

What the note does not cover

• Deferred tax on the pension balance and on the remeasurement is not calculated. Post it yourself if it applies.
• Corporation tax relief is given on contributions paid, not on the service cost and interest charged in the accounts. Adjust the computation for the difference.
• The fuller analysis required of larger companies (the split of scheme assets by type, sensitivity analysis) is not included. Use a free text note if you want to give it.

Where to go next

• Notes to the accounts: the complete guide
• Pension commitments note
• Accounting policies
• Provisions for liabilities note