Pension scheme sponsors may have developed a new mindset to accounting amid an era of enormous scheme surpluses, research from LCP has suggested, with a smooth audit process rather than a large surplus the key priority for most.

LCP found that by far the biggest priority for the upcoming year end for most of the schemes surveyed was a smooth audit process, with 53 per cent of responses saying that was their key objective.

This represents a shift from previous years when more companies were disclosing a deficit and there was a focus on showing the best balance sheet possible.

In addition to this, 35 per cent of sponsors said that showing a surplus has no benefit to them as an organisation and 32 per cent said that while it’s important to show a surplus to highlight a strong funding position, the amount is less important.

However, the firm clarified that the accounting implications are just one element, encouraging sponsors to engage with their scheme rules, current funding levels, and ultimate objective to ensure their strategy remains aligned with wider corporate objectives.

LCP partner, Jonathan Griffith, commented: “We are seeing a shift in mindset in scheme sponsors when it comes to their approach to accounting as we enter a new era of improved positions and surplus.

“For many, now they are in surplus, the size has become irrelevant, and ensuring that their accounts have a smooth audit has become the key priority.

"Whilst this trend has perhaps been caused by increasing audit requests and requirements over recent years, I do recommend that companies remain engaged with their schemes and ensure the pensions strategy remains aligned with wider corporate objectives."

Some broader uncertainty still remains, as the survey found that over 40 per cent of scheme sponsors are still considering whether and how to reflect the Covid-19 impact in their year-end corporate accounts, according to research from LCP.

Of those who had decided, over half were going to be making some allowance for Covid in their accounts, representing an increase on previous year ends.

The firm highlighted this uncertainty as demonstration of a range of issues, including the subjectivity of any adjustment, a preference to be in line with peers, and the desire for a smooth audit process where assumption changes could cause additional questions.

In light of this, LCP urged sponsors to better understand the long-term impact of Covid on their schemes, pointing out that the updated census data suggesting further reductions in future life expectancy mean now is a good time to consider the suitability of life expectancy assumptions in more detail.

“It’s interesting that there are still a significant number of companies who are still working out whether and how to make an allowance for Covid," Griffith added.

“Whilst it highlights the amount of uncertainty and subjectivity that still surrounds the long-term impact of the pandemic, this is an area where scheme sponsors could and should be proactive as maintaining the “wait and see” approach is starting to look out of line with market practice.”

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