Global pension accounting snapshot – 31 December 2024
This note sets out some of the key issues for those involved in global defined benefit (DB) pension plan accounting.
Key trends
- Corporate bond yields generally rose over the year in the major economies (with more notable increases in the US and UK), leading to higher discount rate assumptions.
- Equity markets in the major economies performed positively over the year, providing a boost for funded DB plans with growth-oriented investment strategies.
- Overall, corporates can expect lower accounting liabilities at 31 December 2024 compared to last year, and an improvement in their net balance sheet position.
Discount rate assumptions and key local issues
The table below shows the IAS19 discount rate assumption ranges at 31 December 2024 that we typically expect in several key DB pension markets globally, as well as some of the key pension accounting issues in those countries.
|
|
Indicative IAS19 discount rate range |
Key issues in local market |
||
|
Short duration (<10 years) |
Medium duration (10-15 years) |
Long duration (>15 years) |
|
|
|
UK |
5.1%-5.5% |
5.4%-5.7% |
5.5%-6.0% |
Virgin Media legal case may require further investigation and potential for additional liabilities to be disclosed. |
|
USA |
5.4% – 5.5% |
5.5% – 5.6% |
5.5% – 5.7% |
The rates listed exclude a very large series of U.S. dollar-denominated Saudi Government Bonds that were recently upgraded to AA from A by Moody’s and, if reflected, would raise discount rates. Some sponsors are choosing to use the above-referenced Saudi Government Bonds because they believe these satisfy IFRS IAS19 guidance for the selection of a discount rate. |
|
Canada |
3.4%-4.5% |
4.5%-4.7% |
4.7%-4.9% |
New mortality improvement scale released last April (CanMI-2024), but not yet widely used in the market. |
|
Eurozone |
2.7%-3.4% |
3.3%-3.6% |
3.4%-3.7% |
Netherlands: New pension legislation (Wet Toekomst Pensioenen) could potentially impact balance sheet and P&L. Potential new liability for companies with workforce that performs heavy labour due to RVU early retirement legislation. |
|
Indonesia |
6.9%-7.0% |
7.1% |
7.1% |
Yield curve very flat currently. |
|
China |
1.3%-1.7% |
1.7%-1.9% |
1.9%-2.0% |
Changes to statutory retirement age being phased in from 2025 to 2040 which will increase duration and may push up the discount rate accordingly. China bond yields have fallen to an historic low towards the end of 2024. |
|
India |
6.6%-6.8% |
6.8%-6.9% |
6.9%-7.0% |
Yield curve very flat currently. |
If you would like to discuss the above in further detail or would like insights for any other countries, please get in touch.
Increasing corporate bond yields
The chart below shows the change in the yields on AA-rate Sterling, US Dollar and Euro denominated corporate bonds over the year.
Multinationals sponsoring defined benefit (DB) pension plans are likely to have seen improvements in their net pension liability on the balance sheet under IFRS. Corporate bonds generally rose over the year in the major economies (with more notable increases in the US and UK), leading to higher discount rates and a corresponding reduction in DB liability values compared to the previous year end.
Positive growth asset performance
The chart below shows the performance of equity markets in the UK, US, Europe and Japan over the year.
Equity markets in the major economies performed positively over the year, although there was significant divergence in performance by country. For example, the US and Japan equity markets performed strongly (with the latter experiencing significant volatility during July 2024), while equity market growth in the UK and Europe was more modest. Funded DB plans with growth-oriented investment strategies are likely to have seen an improvement in their asset values.
Contacts
Isabel Coles
Head of International Consulting, MBWL International
VIEW PROFILE
Email:
isabel.coles@mbwl-int.com
Tel: +44 20 3949 5710
Isabel Coles
Head of International Consulting, MBWL International
A multilingual expert in employee benefits for multinational corporates.
Isabel heads up MBWL International, advising multinational organisations on their employee benefits arrangements around the world, with a focus on corporate sales and purchases, accounting disclosures and the financing, risk management and design of benefit plans.
Her vast experience includes leading global accounting consolidations under international, UK and US accounting standards for multinational companies headquartered in the UK and overseas – with consolidations ranging in size from two to over 50 defined benefit plans.
She has advised both corporate and private equity buyers on the employee benefit considerations (including pension liabilities) associated with corporate sales and purchases in Europe and worldwide, from due diligence through to closing and subsequent integration work. Isabel has also undertaken many benefit audits and benchmarking exercises, including a 25-country audit for a company in the technology sector.
Other areas of Isabel’s expertise include reviewing and establishing international pension plans, advice on individual expatriate employee benefit packages and supporting multinationals in agreeing and implementing global governance approaches and policies for managing their employer benefit plans.
Isabel chairs the International Committee of the Association of Consulting Actuaries and is fluent in German and French.
Lewys Curteis
Principal, Barnett Waddingham
VIEW PROFILE
Email:
Lewys.Curteis@Barnett-Waddingham.co.uk
Tel: +44 333 11 11 222
Lewys Curteis
Principal, Barnett Waddingham
Lewys joined Barnett Waddingham in 2012, having graduated from Durham University with a First Class degree in Natural Sciences (Mathematics and Physics). Lewys qualified as an actuary in July 2016, winning the Actuarial Risk Management prize for the performance in his CA1 exam.
Lewys advises companies on a wide range of defined benefit (DB) pension issues, including funding valuations, corporate accounting, transactions and liability management. He has completed projects for a variety of different companies (with schemes ranging from the low millions to the multi-billions), helping to reduce both risk and cost.
Lewys has also spent time in the USA as part of Barnett Waddingham’s joint venture with Milliman, building up a good understanding of US pensions issues.
Lewys became a Principal at Barnett Waddingham in 2022.
Contacts
Isabel Coles
Head of International Consulting, MBWL International
VIEW PROFILE
Email:
isabel.coles@mbwl-int.com
Tel: +44 20 3949 5710
Isabel Coles
Head of International Consulting, MBWL International
A multilingual expert in employee benefits for multinational corporates.
Isabel heads up MBWL International, advising multinational organisations on their employee benefits arrangements around the world, with a focus on corporate sales and purchases, accounting disclosures and the financing, risk management and design of benefit plans.
Her vast experience includes leading global accounting consolidations under international, UK and US accounting standards for multinational companies headquartered in the UK and overseas – with consolidations ranging in size from two to over 50 defined benefit plans.
She has advised both corporate and private equity buyers on the employee benefit considerations (including pension liabilities) associated with corporate sales and purchases in Europe and worldwide, from due diligence through to closing and subsequent integration work. Isabel has also undertaken many benefit audits and benchmarking exercises, including a 25-country audit for a company in the technology sector.
Other areas of Isabel’s expertise include reviewing and establishing international pension plans, advice on individual expatriate employee benefit packages and supporting multinationals in agreeing and implementing global governance approaches and policies for managing their employer benefit plans.
Isabel chairs the International Committee of the Association of Consulting Actuaries and is fluent in German and French.
Lewys Curteis
Principal, Barnett Waddingham
VIEW PROFILE
Email:
Lewys.Curteis@Barnett-Waddingham.co.uk
Tel: +44 333 11 11 222
Lewys Curteis
Principal, Barnett Waddingham
Lewys joined Barnett Waddingham in 2012, having graduated from Durham University with a First Class degree in Natural Sciences (Mathematics and Physics). Lewys qualified as an actuary in July 2016, winning the Actuarial Risk Management prize for the performance in his CA1 exam.
Lewys advises companies on a wide range of defined benefit (DB) pension issues, including funding valuations, corporate accounting, transactions and liability management. He has completed projects for a variety of different companies (with schemes ranging from the low millions to the multi-billions), helping to reduce both risk and cost.
Lewys has also spent time in the USA as part of Barnett Waddingham’s joint venture with Milliman, building up a good understanding of US pensions issues.
Lewys became a Principal at Barnett Waddingham in 2022.