The asset ceiling: accounting for surpluses in the LGPS​

Garry Smith gives on update on how the asset ceiling applies when the accounting position shows a surplus.

As interest rates have increased over recent periods, improvements in funding levels on the accounting basis may mean LGPS employers find themselves with an accounting surplus at the next balance sheet date.​

While this is generally good news, it is not simply a case of recognising the full surplus – accounting standards only allow an asset to be recognised to the extent that the employer can gain economic benefit from that surplus.  ​

Economic benefit can be gained in two ways – either via a refund, or via a reduction in future contributions. This limit to the net asset is known as the “asset ceiling”.​

It is a complex area of pensions accounting. IFRS (IAS19 and IFRIC14) are quite detailed, but UK GAAP (FRS102) is less definitive.  This note raises some of the key issues that employers should consider.   ​