FRS17 Past service cost

[Bihac]

Hi

On page 24 of the notes, it says past service cost excludes benefits that don't vest immediately. I'm assuming this means not coming into payment immediately, e.g. discretionary pension increases/service credits to actives. If so, when would such benefit improvements feed into the pension cost(would it be when the active member retires?), or do they instead go through the STRGL? And do they get added to the value of the FRS17 liabilities as soon as they are granted?

Thanks

 

[Stuart Underwood]

Hi Bihac

Meaning of vesting

I agree here that vesting means the period until receipt of payment, (ie coming into payment), which is what you said below.

[However I've seen different meanings of vesting so don't want to take this as the only meaning ...

... in particular the most usual meaning of vesting is when there is no entitlement to benefits until the employee has completed a vesting period.

You may also want to look at the definition of vesting in FRS17.]


Accounting for vesting

I believe FRS17 is taking vest in this context to mean "come into payment". FRS 17 says:

Past service costs are recognised in the profit and loss account over the period until the benefits vest. If the benefits vest immediately, the past service cost is recognised immediately.

ie for benefits that have yet to be vested they would spread over the period until they come into payment in the profit and loss.

As for the balance sheet:

"The accrued benefits are the benefits for service up to a given point in time, whether vested rights or not."

ie should be allowed for in the balance sheet.

And the STRGL:

The short answer is that the STRGL needs to be such that the whole thing balances. The long answer, explaining how that would work in detail for vesting feels a little beyond SA4 to me!

Best wishes

Stuart